- 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
On a linear demand curve, maximum total expenditure occurs when demand is ______.
B. unit-elastic
C. inelastic
A. elastic
B. unit-elastic
C. inelastic
Correct Answer: B
User Contributed Comments 3
| User | Comment |
|---|---|
| maryprz14 | Can someone explain this please? |
| xemex131 | maryprz14: when demand is inelastic, the firm is stronger, so the firm will keep raising the prices and increase revenue until the elasticity becomes greater than one. Similarly, when the demand is elastic, the consumer is stronger, hence a firm will keep lowering the prices and increase revenue until the elasticity becomes one. Check exhibit 16 in reading 14 in the curriculum if this is still not clear. |
| gc1210 | @Xemex131, I think you meant Exhibit 4 in Reading 14 section 2.2.3 Elasiticity and Total Expenditure. |