- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Topics in Demand and Supply Analysis
- Subject 2. Elasticities of Demand

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**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

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**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 |