A government wants to reduce electricity consumption by 15%. The price elasticity of demand for electricity is -5. The government must the price of electricity by .

Increase; 3%

Explanation:

A government wants to reduce electricity consumption by 15%. The price elasticity of demand for electricity is -5. The government must increase the price of electricity by 3%.

Price elasticity of demand shows how quantity demanded changes when there is a change in price. If this elasticity is negative then it means that a price increase would result in a decrease in quantity demanded and vice versa.

In this case therefore, to decrease consumption / demand, there is a need to increase prices.

Price elasticity of demand = Change in quantity demanded / Change in price

-5 = -15% / P

-5P = -15%

P = -15% / -5

P = 3%

Increase price by 3%.

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