- CFA Exams
- CFA Exam: Level I 2021
- Study Session 4. Economics (1)
- Reading 12. Topics in Demand and Supply Analysis
- Subject 1. Demand Concepts

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**CFA Practice Question**

In the demand function for normal good x, Q

B. B > 0

C. C > 0

D. D > 0

_{x}= A + B x P_{x}+ C x I + D x P_{y}, 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.

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**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. |