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If cost of sugar increases by 25%. How much percent consumption of sugar should be decreased in order to keep expenditure fixed?

Correct answer: C. 20%

  • A. 10%
  • B. 15%
  • C. 20%
  • D. 25%
  • E. None

Explanation

Keep expenditure fixed by making the consumption factor the reciprocal of the price factor. A 25% price increase gives a price factor of 1.25, so consumption must become 1/1.25 = 0.8, meaning a decrease of 20%. The likely trap is 25%, which reduces consumption by the same percentage as the price increase instead of accounting for the changed price.

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