Question

If the price of a commodity is decreased by $20\%$ and then consequently, its consumption increases by $20\%,$ then what will be the percentage increase or decrease in expenditure on the commodity?

• A. $4\%$ increase
• B. $4\%$ decrease
• C. $8\%$ increase
• D. $8\%$ decrease

Answer 1

The correct option is B $4\%$ decrease

Let the initial expenditure on the commodity be $x.$
Now, the price decreases by $20\%.$
Current price $=(x-20\%\text{of}x)=0.8x.$

Due to decrement in price, $20\%$ consumption has increased.
So, current expenditure on commodity $=(0.8x+20\%\text{of}0.8x)=0.96x$

$\therefore$ Percentage change in expenditure on the commodity
$=\frac{0.96x-x}{x}\times 100=-4\%$
Hence, there is $4\%$ decrement in the expenditure on the commodity.