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Question
The government wants to reduce the consumption of good by 10%. The price elasticity of demand for elasticity is -0.4. The government should raise the price of elasticity by ______.
Options
2%
25%
0.4%
4%
Solution
The government wants to reduce the consumption of good by 10%. The price elasticity of demand for elasticity is -0.4. The government should raise the price of elasticity by 25%.
Explanation:
Percentage Change in Quantity Demanded = Price Elasticity of Demand × Percentage Change in Price
−10% = −0.4 × Percentage Change in Price
Percentage Change in Price = `(-10%)/-0.4`
= 25%
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