CFA Practice Question

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CFA Practice Question

Price increases from 10 to 12 dollars and the price elasticity of demand is -0.5. The quantity demanded was 500 units. What will it be now?
A. 450
B. 500
C. 550
Explanation: Any given percentage fall in price leads to an increase in quantity demanded that is half as much; a 20% price increase will reduce the quantity demanded by 10%. This means the quantity demanded will be 450 units.

User Contributed Comments 3

User Comment
yuhsul1 Price Elasticity of Demand is always negative.
myron @yuhsul1: yes for normal goods only.
rojaslav myron: No, Price Elasticity is always negative. This changes for the Income Elasticity of Demand, which can be positive for normal goods or negative for inferior goods.
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