CFA Practice Question

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CFA Practice Question

If the price elasticity of demand is 0.3, then a 20% increase in price will ______ the quantity demanded by ______ %.

A. increase; 20.3
B. decrease; 6.0
C. decrease; 1.5
Correct Answer: B

The price elasticity of demand is E = %change in quantity/ % change in price. Since demand curves are downward-sloping, this is a negative number. Economists, however, use the absolute value of the % change in quantity.

User Contributed Comments 11

User Comment
soarer1 How do you calculate this?
yael Elasticity = % change in quantity/% change in price
E = .3
if % change in price = 20%
% change in quantity = 20% x .3
% change in quantity = 6%
TUFF if PED=0.3 and %change in qty is 20% or 0.20
therefore there would be a 6% or 0.06 [0.20 *0.3]fall in price.
smartinski Lets say that I sell Bread at $1 and then I raise the price by 50%. Does that mean that demand will decrease by 50%?
odette well, maybe
vanillarice Depends on the elasticity coefficient of bread at that price.
wulin Easiest calculation question in the whole book.
supperbee This is howis reasoned: 1% change in price leads to a .3% change in qty demanded.if price changes by 6% qty demanded changes by?
MRSLETS I used the formula for price elasticiy and Basic mathematics
X= Change in gty dd
x=0.30*0.20(cross multiply)
Since price elasticity is less than one,it will be a decrease with 6%
bundy % change in Q / % change in P = .3 so .3 x .20 = .06 X 100 = 6
bidisha thanks superbee
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