- CFA Exams
- CFA Level I Exam
- Study Session 4. Economics (1)
- Reading 12. Topics in Demand and Supply Analysis
- Subject 2. Elasticities of Demand

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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.

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**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. |