Question

If the price of a commodity increases by 25%, by what percentage should the consumption be reduced to keep the expenditure the same? 
 

• A. 20%
• B. 25%
• C. 30%
• D. 33.33%

Hint:

For percentage increase problems, use the formula: Reduction \% = (Increase \% / (100 + Increase \%)) \times 100. Here, it's (25 / 125) \times 100 = 20\%.

Answer 1

The Correct Option is A

Step 1: Understanding the question. 
The question requires finding the percentage reduction in consumption to maintain the same expenditure when the price increases by 25%. 
Step 2: Analyzing the options. 
Let the original price be 100 units and consumption be 100 units, so expenditure is 10,000 units. New price is 125 units. To keep expenditure at 10,000, new consumption = 10,000 / 125 = 80 units. Reduction = 20 units, which is 20%. 
(A) 20%: Correct — Matches the calculation. 
(B) 25%: Incorrect — That's the price increase percentage. 
(C) 30%: Incorrect — Overestimation. 
(D) 33.33%: Incorrect — Relates to different percentage change. 
Step 3: Conclusion. 
The correct answer is (A) 20%, as consumption needs to be reduced by 20% to keep expenditure constant.