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If the price of a commodity rises by 25%, by what percentage must consumption fall so that total expenditure is unchanged?

A20%
B15%
C30%
D25%
Answer & Solution
Correct answer: A. 20%
If price becomes 1.25 P, consumption must scale by 1/1.25 = 0.8, a fall of 20%. The formula is r/(100+r) × 100 = 25/125 × 100 = 20%.
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