A government wants to reduce electricity consumption by 10%. The price elasticity of demand for electricity is -5. The government must ________ the price of electricity by ________.
A) raise; 2.0%
B) raise; 0.5%
C) raise; 1.25%
D) lower; 0.5%

Question

Quizplus · Accepted Answer

To achieve a 10% reduction in electricity consumption with a price elasticity of demand of -5, the price must be raised by 2.0%. This is calculated by dividing the desired percentage change in quantity (-10%) by the elasticity (-5), resulting in a 2% increase in price.

A Government Wants to Reduce Electricity Consumption by 10