- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Topics in Demand and Supply Analysis
- Subject 2. Elasticities of Demand
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. |