- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Topics in Demand and Supply Analysis
- Subject 1. Demand Concepts
CFA Practice Question
In the demand function for normal good x, Qx = A + B x Px + C x I + D x Py, we are certain that ______.
B. B > 0
C. C > 0
D. D > 0
A. A > 0
B. B > 0
C. C > 0
D. D > 0
Correct Answer: C
The definition of a normal good indicates the higher the income, the higher the demand.
User Contributed Comments 8
| User | Comment |
|---|---|
| Catalin92 | I don't get this one. |
| ashish100 | Where you at smart people? Help the rest of us confused people out. Hopefully I'll come back to this page again see some insights on this one. Thanks in advance. |
| przybmarta | Think of it this way: The demand function represents the behavior of buyers. The question specifically refers to a normal good, which means that we can be certain of one thing: If the buyers income goes up, he/she will consume more. Therefore we are certain that C>0. If C<0, then the buyer would be consuming less when earning more, therefore making the good an inferior good. |
| choas69 | this is so simple when you understand it, normal goods are purchased more when you have higher income. |
| choas69 | B,C & D are changes in the Own Price, Income and Price of Subtitutes or Complenetaries |
| kingirm | what the hell is A B C ???? |
| igna0007 | income cannot be (-) or otherwise you're be a hobo lying down the street |
| MathLoser | Hey guys, in case you don't know. Please Google Demand Function. They will explain how to use demand function to calculate price elastic. It's very simple. A, B, C are random numbers in this question. |