Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price elasticity of demand for electricity is 0.40. You advise the Nova Scotia government to
A)raise the price of electricity by 12.5 percent.
B)raise the price of electricity by 2 percent.
C)lower the price of electricity by 12.5 percent.
D)stay away from the market for electricity and let the market mechanism fix the problem.
E)lower the price of electricity by 2 percent.

Question

Quizplus · Accepted Answer

To achieve a 5% reduction in consumption with a price elasticity of demand of 0.40, the price must be increased by 12.5% (5% / 0.40 = 12.5%).

Suppose the Government of Nova Scotia Wants to Reduce the Consumption