Question

Nataraj​ (2007) finds that a 100100​% increase in the price of water for heavy users in Santa Cruz caused the quantity of water they demanded to fall by an average of 2020​%. ​ (Before the​ increase, heavy users initially paid ​$1.551.55 per​ unit, but afterwards they paid ​$3.103.10 per​ unit.) In percentage​ terms, how much did their water expenditure​ (price times ​quantity)long dash—which is the water​ company's revenuelong dash—​change?

Answer 1

Answer:

In percentage terms It wil lbe an increase of 60%

Explanation:

We will calculate as follow:

currently the revenue is 1.55

if the price goes up to 3.10 the demand falls by 20%

so we are reducing sales revenue by 20%

3.10 x ( 1 - 20%) = 3.10 x 0.8 = 2.48

Now we can calculate the percent of change in the water expenditure:

2.48/1.55 - 1 = 0.60

In percentage terms It wil lbe an increase of 60%