If the market price of sugar increases by 25%, by what percentage must a household reduce its consumption to keep total expenditure unchanged?
Answer and explanation
Correct answer: C. 20%
- Step 1: Percentage reduction formula: R / (100 + R) 100%. Step 2. Substitute R = 25: 25 / (100 + 25) 100% = 25 / 125 100% = 1/5 100% = 20%. Answer: 20%. Why not the others: 25% keeps consumption equal; 15% is an arbitrary guess; 16.67% corresponds to a 20% price increase.
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