If the price of wheat rises by , then by how much percent must a man reduce his consumption in order to keep his budget the same as before ?
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Option B
Approach
Expenditure is price times consumption; hold the product fixed and see what the consumption multiplier must be.
Step-by-step solution
- 1Let the price be and the consumption , so the budget is . After the rise the price is .
Why: A rise of multiplies the price by .
- 2For the budget to be unchanged, the new consumption must satisfy , so .
Why: The two multipliers must be reciprocals, because their product is the unchanged expenditure.
- 3is a fall of , i.e. a reduction of .
Why: The reduction is measured against the original consumption , not against the new one.
Shortcut
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Common mistakes
Option A
No route reaches from a rise.
Option C
Cut consumption by the same percentage the price rose, forgetting that the two percentages are taken on different bases.
Option D
No route reaches from a rise.
Skills used