CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

An increase in the price of computer diskettes leads to an increase in total expenditures on the diskettes. Which of the following is true for this price change?
A. The demand for computer diskettes is inelastic.
B. The demand for computer diskettes is elastic.
C. Computer diskettes are an inferior good.
Explanation: Inelastic demand is characterized by the following: the percentage increase in price is responded to with a fall in demand. The fall in demand, however, is smaller, in percentage terms, than the increase in price. Thus, a price rise for an inelastic product will result in an increase in total expenditure as the price increase exceeds the fall in demand in percentage terms.

User Contributed Comments 2

User Comment
cleopatraliao Note its total expenditure not total output!!or otherwise it should be C!
MapherRdz I dont get it. Which is the relationship between price, elasticity and total exp? Sorry if it is a dumb question.
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