CFA Practice Question

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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 ______.

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.
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