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. |