Question : Water tax is increased by 20% but its consumption is decreased by 20%. Then, the increase or decrease in the expenditure of money is:
Option 1: 5% decrease
Option 2: 4% decrease
Option 3: No change
Option 4: 4% increase
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Correct Answer: 4% decrease
Solution :
Given: Water tax is increased by 20% but its consumption is decreased by 20%
For $a$% increase and $b$% decrease,
the equivalent change is = $(a - b - \frac{a×b}{100})$%
So, the equivalent change in expenditure = (20 – 20 – $\frac{20×20}{100}$)% = –$\frac{400}{100}$% = – 4%
The negative sign implies that expenditure decreased by 4%.
Hence, the correct answer is a 4% decrease.
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