- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Topics in Demand and Supply Analysis
- Subject 2. Elasticities of Demand
CFA Practice Question
At price = $5, the elasticity of good X is -1. This means ______.
B. that the price will most likely become $4 next.
C. the demand is inelastic, as the elasticity is less than zero.
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 0.xxx then it is inelastic |
| 10425406 | tricky |
| 10425406 | 0 means perfectly inelastic? |
| agogoi | @10425406 Yes, 0 refers to perfectly inelastic |