Price elasticity of demand (PED) is calculated using the formula:
\[ \text{Price Elasticity of Demand} = \frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Price}} \]
In this case, the percentage change in quantity demanded is a decrease of 5%, which we can express as -5%. The percentage change in price is an increase of 20%, which we can express as +20%.
Now plug in the values:
\[ \text{Price Elasticity of Demand} = \frac{-5%}{20%} = \frac{-5}{20} = -0.25 \]
When calculating PED, we typically look at the absolute value, so we take:
\[ |\text{Price Elasticity of Demand}| = 0.25 \]
Thus, the price elasticity of demand is 0.25.
The correct answer is: 0.25.
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