A government wants to reduce electricity consumption by 40%. The price elasticity of demand for electricity is -10. The government must ________ the price of electricity by ________.
A) raise; 4.0%
B) raise; 0.25%
C) raise; 1.25%
D) lower; 0.25%

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is percentage change in quantity demanded divided by percentage change in price. To reduce consumption by 40% with an elasticity of -10, the price must be raised by 4% (40% / -10 = -4%).

A Government Wants to Reduce Electricity Consumption by 40