CFA Practice Question

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CFA Practice Question

At price = $5, the elasticity of good X is -1. This means ______.

A. when price equals $5, a 1% rise in price would result in a fall in quantity demanded of 1%.
B. that the price will most likely become $4 next.
C. the demand is inelastic, as the elasticity is less than zero.
Correct Answer: A

User Contributed Comments 8

User Comment
zeshan7 Why C is wrong?

The demand is indeed inelastic and coefficient is less than zero.
myron If it is within -1 and 1 it will be inelastic @zeshan7
weebe Elasticity for demand tends to be a negative number. But we represent it as a positive one (usually).
In this example -1 means unitary elastic.
It means 1% rise in price is 1% fall in quantity demanded. Which is unitary elastic
MathLoser Hey guys, when we calculating Own-price elasticity of demand.
Remember it's |E| (absolute value), not E.
|E| > 1 : Elastic .
|E| = 1: Unit elastic
|E| <1: Inelasticity. (0.5; 0.12, 0.69, etc)
yesitan Because negative value is ignored and only take the absolute number. if it is greater than 1 then elastic, if it is equal to 1 then unit elastic and if it is then it is inelastic
10425406 tricky
10425406 0 means perfectly inelastic?
agogoi @10425406 Yes, 0 refers to perfectly inelastic
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