Water tax is increased by 20% while consumption drops by 20%. By what percent does the total expenditure change?

Introduction / Context:
Total expenditure equals price multiplied by quantity. When both change, multiply the corresponding factors. A neat way is to convert each percent change to a multiplier and then combine them.

Given Data / Assumptions:

• Price multiplier = 1 + 20% = 1.20.
• Quantity multiplier = 1 − 20% = 0.80.
• Initial expenditure is the reference (100%).

Concept / Approach:
New expenditure factor = 1.20 * 0.80 = 0.96. This equals 96% of the old expenditure, i.e., a 4% decrease. Always multiply the independent effects; never add the percentages.

Step-by-Step Solution:

Verification / Alternative check:
Start with ₹100. After +20% price: effective price factor 1.2. With −20% quantity: factor 0.8. Spend = 100 * 1.2 * 0.8 = ₹96, 4% lower.

Why Other Options Are Wrong:
“No change” would require 1.20 * 0.80 = 1; “5% decrease” is a rounding guess; “4% increased” flips the sign.

Common Pitfalls:
Adding +20% and −20% to claim 0%, which ignores multiplicative effects. Percentage changes on different factors must be multiplied, not added.

Final Answer:
4% decreased