A housewife reduces her consumption of coffee by 20% due to a 20% increase in price of coffee. What is the percentage effect on the expenditure on coffee?
- 4% increase
- 2% increase
- No change
- 2% decrease
- 4% decrease
The Usual Method
Assuming the original price of coffee as $100/unit
So new price = $120/unit (20% increase)
Let the consumption be 100 units
New consumption = 80 units (20% decrease)
Original expenses of coffee = 100 x 100 = $10,000
New expenses of coffee = 80 x 120 = $9600
Hence, change = $10,000 – $9600 = $400
Hence percentage change = % decrease.
Estimated Time to arrive at the answer = 45 seconds.
From the table of % in the section of Percentages in Stuff to Remember, we note that if the rate of coffee increases by 20% in order to maintain the same expenses, the consumption should be reduced by 16%. But actually, the consumption is reduced by 20%. Hence the net effect is 4% (20 – 16 = 4) decrease in expenses.
Estimated Time to arrive at the answer = 5 seconds.