A government wants to reduce electricity consumption by 5%. The price elasticity of demand for electricity is -0.5. The government must ________ the price of electricity by ________.
A) raise; 10.0%
B) raise; 1.0%
C) raise; 0.1%
D) lower; 0.5%

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is percentage change in quantity demanded divided by percentage change in price. To achieve a 5% reduction in quantity demanded with a price elasticity of -0.5, the price must be raised by 10% (5% / -0.5 = -10%).

A Government Wants to Reduce Electricity Consumption by 5