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25 February, 17:05

Nataraj (2007) finds that a 100100 % increase in the price of water for heavy users in Santa Cruz caused the quantity of water they demanded to fall by an average of 2020 %. (Before the increase, heavy users initially paid $1.551.55 per unit, but afterwards they paid $3.103.10 per unit.) In percentage terms, how much did their water expenditure (price times quantity) long dash-which is the water company's revenuelong dash- change?

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  1. 25 February, 18:14
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    In percentage terms It wil lbe an increase of 60%

    Explanation:

    We will calculate as follow:

    currently the revenue is 1.55

    if the price goes up to 3.10 the demand falls by 20%

    so we are reducing sales revenue by 20%

    3.10 x (1 - 20%) = 3.10 x 0.8 = 2.48

    Now we can calculate the percent of change in the water expenditure:

    2.48/1.55 - 1 = 0.60

    In percentage terms It wil lbe an increase of 60%
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