Nataraj (2007) found that a 100% increase in the price of water for heavy users in Santa Cruz, California, caused the quantity of water they demanded to fall by an average of 20% (Mini- Case “Turning Off the Faucet”). Before the increase, heavy users initially paid $ 1.55 per unit, but afterward they paid $ 3.14 per unit. What can you say about the elasticity of demand? In percentage terms, how much did their water expenditure (price times quantity)—which is the water company’s revenue—change?
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