CFA Practice Question
There are 539 practice questions for this study session.
CFA Practice Question
A recent increase in the supply of oranges caused their price to drop from $5 to $2.50 per bushel and quantity demanded to rise from 10,000 bushels to 20,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is ______.
Explanation: Price elasticity is found by solving the following equation:
Percent change in quantity demanded/Percent change in price: [(10,000-20,000)/(20,000+10,000)] / [(5-2.50)/(5+2.5)] = -1
User Contributed Comments 16
|tjinmei||quite good question you've got there. boo|
|mtcfa||Is it just me or does this website calculate %change differently than I've been taught. When quantity moves from 10k to 20k, is that not a 100% change???|
|shayu||mtcfa: check the formula for the calculation of price elasticity of demand. The answer given is correct.|
|dimanyc||i thought it's supposed to be averages in the denominator of each?!|
|tabulator||2s cancel out. This is just a faster way to get the same result.|
|viannie||again I remind myself, don't eyeball, just do the math and definitely we'll get the right answer.|
|emongeca7||dimanyc, if you use the averages in the denominators, you get the given answer. What you say is correct, but does not invalidate the answer.|
|toto123||%change is quatity is 100%
%change in price is 50%
how in the hell did they arrive at this answer?
|thekobe||if you use the averages in the denominators you get: change in Q 10/15 change in P 2.5/3.75 so you get .67/.67|
|dash1s||(Change in Q/Qo)/(Change in P/Po)
|gill15||Isn't the price elasticity really 1 and not -1? I thought elasticity was unit free and the Absolute value.|
|gill15||Read note above.....I just went through the notes..."Many economists present the price elasticity as an absolute value so that it has a positive value. We will follow this convention"
It should be 1
|gill15||Also, Dash...dont use that form. Po os 5 in the question and therefor you would end up with 2 as an answer. Use the averages method.|
|alles||i didn't use the averages because the question asked for the elasticity "in this price range"|
|Lambo83||When there is only two quantity and two price points use the Arc Elasticity. Page 45 Reading 13. The denominators for both the change in Q and P are averages|
|MaxGuL||Example from CFA member area
The price of a good falls from $15 to $13. Given this decline in price, the quantity demanded of the good rises from 100 units to 120 units.
The own-price elasticity of demand = ((120-100)/100) / ((13-15)/15) = - 1.5
Correct answer = ((20-10)/10) / ((2.5-5)/5) = - 2