CFA Practice Question

CFA Practice Question

A new product is introduced that is a substitute for an existing product. The demand for the existing product will:
A. Decrease
B. Increase
C. Insufficient information to decide whether it will increase or decrease
Explanation: Some consumers will want the new product rather than the existing product.

User Contributed Comments 6

User Comment
bantoo Suppose new product is of higher price and inferior quality and there is perfect competition, then who will buy the new product.
moneyguy It's fair to say that SOME customers will want the substitute product. Demand would go down.
leftcoast The only way demand doesn't decrease is if the new product literally sells zero units. If that happens demand stays the same. No way it can increase.

I suppose that is possible, so I guess C could be correct, but come on guys you're over thinking it here.
emonik Dont assume when answering questions..... the question did not state if price of d substitute is high or low, go with d flow.
mcfranz C is definitely a possible answer, it's possible that the new product sold 0 units and would have no impact on demand.
ange @mcfranz: I think we should assume "a new product is introduced" means it will be sold on the market - don't consider extreme scenarios.
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