Answer: Increase; 3%
Step-by-step explanation:
A government wants to reduce electricity consumption by 15%. The price elasticity of demand for electricity is -5. The government must increase the price of electricity by 3%.
Price elasticity of demand shows how quantity demanded changes when there is a change in price. If this elasticity is negative then it means that a price increase would result in a decrease in quantity demanded and vice versa.
In this case therefore, to decrease consumption / demand, there is a need to increase prices.
Price elasticity of demand = Change in quantity demanded / Change in price
-5 = -15% / P
-5P = -15%
P = -15% / -5
P = 3%
Increase price by 3%.