CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Suppose X and Y are complements. This indicates that in the demand function for X, Qx = A + B x Px + C x I + D x Py, ______.

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.

User Contributed Comments 5

User Comment
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.
You need to log in first to add your comment.