- CFA Exams
- CFA Exam: Level I 2021
- Study Session 4. Economics (1)
- Reading 12. Topics in Demand and Supply Analysis
- Subject 1. Demand Concepts

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**CFA Practice Question**

Suppose X and Y are complements. This indicates that in the demand function for X,
Q

B. D > 0

C. D < 0

_{x}= A + B x P_{x}+ C x I + D x P_{y}, ______.A. B > 0

B. D > 0

C. D < 0

Correct Answer: C

Complements have a negative cross-price elasticity of demand. Both B and D should be negative.

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**User Contributed Comments**
5

User |
Comment |
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ashish100 |
Great. Dont get this one either lol |

choas69 |
make your own equation Qx = 100 - 0.8 Px + 100 I - 5Py is X and Y are complements therefore the change of Py should be negative, same goes if it was subtitutes . |

Danielm96 |
The demand equation is always at negative slope. |

yesitan |
if the goods X and Y are substitutes, does it change the demand function to : Qx = 100 - 0.8 Px + 100 I + 5 Py? or will it change both to 0.8 Px too? Thanks in advance |

kimmykim23 |
If D is negative it’s a compliment and if D is positive it’s a substitute. |