Suppose You Are the Manager of a Local Water Company

question 149

Multiple Choice

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is 0.25, by how much would you have to raise the price of water?

• A) 10 percent
• B) 25 percent
• C) 40 percent
• D) 100 percent

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Definitions:

Long-Run Effect

The impact of economic policies or events that become apparent and have a sustained influence over an extended period.

Real GDP

The assessment of a nation's economic production, corrected for variations in price levels (either inflation or deflation), representing the real worth of all goods and services generated.

Aggregate Demand Curve

A graphical representation that shows the relationship between the overall price level in the economy and the total demand for goods and services at that price level.

Velocity of Money

The rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period.