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Jose works for the economic research department of the local utility company in his city. He is interested in the effect of a price increase in the demand for their services. He calculates that the price elasticity for the demand is -2.3. This means: A unit increase in price will induce a 2.3 unit of services decrease in consumption.Cable services are a Giffen good.Demand will increase by 2.3% if price increases by 1%.Demand will not change if price is increased.Demand will fall approximately by 2.3% if price increases by 1%.

Question

Jose works for the economic research department of the local utility company in his city. He is interested in the effect of a price increase in the demand for their services. He calculates that the price elasticity for the demand is -2.3. This means:

A unit increase in price will induce a 2.3 unit of services decrease in consumption.

Cable services are a Giffen good.

Demand will increase by 2.3% if price increases by 1%.

Demand will not change if price is increased.

Demand will fall approximately by 2.3% if price increases by 1%.

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