A Caribbean airline sells 5000 tickets per month for travel

A Caribbean airline sells 5,000 tickets per month for travel to the UK at an average price to $600. When it reduces the price to $540, it sells an average of 6,000 tickets per month. What is the price elasticity of demand? A -2 7 C +0.5 D -0.5

Solution

Answer is -2 Original demnad: 5000 tickets New demand: 6000 tickets Change in demand: 1000 tickets % change in demand: 1000 /5000 = 20% Original price: 600 New price: -540 Change in price: -60 % Change in price: -60 / 600 = -10% Price elasticity of demand: % Change in demand / % change in price 20% / -10% = -2