- CFA Exams
- CFA Level I Exam
- Study Session 4. Economics (1)
- Reading 12. Topics in Demand and Supply Analysis
- Subject 2. Elasticities of Demand

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**CFA Practice Question**

Compute the approximate elasticity of demand from the following data.

A. 0.87

B. 1.14

C. 1.5

**Explanation:**Elasticity = [(11.5-13.5)/12.5]/[(23 -20)/21.5) = (2/12.5)/(3/21.5) = .16/.14 = 1.14

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**User Contributed Comments**
9

User |
Comment |
---|---|

PedroEdmundo |
Don't really agree with the explanation: I found 1.15. The formula is not about diving by the average bu the sum? |

dimos |
ALWAYS put in the denominator the average |

ljamieson |
and don't invert like i did ... |

viannie |
hmmm ... I need to remember that elasticity is a measurement of % change of quantity due to % change in price. Per dollar change in price, how that affect the quantity! remembering the formula I found always put me in the spot of reversing the fraction and CFA always have both answer for options! |

morek |
Remember it is absolute value. I always forget and think I am calculating incorrectly. |

nneks |
don't care what they say the answer is 1.146667 which approximates to 1.15! |

nneks |
shoot...I thought c was 1.15 not 1.5.....wow the little details thst we miss... |

jpducros |
When dealing with elasticity calculation : 2 things to remember : - always put quantities in the numerator. - use the "average" in the denominator when calculating var quantities and var prices. |

gill15 |
Remember guys. When we're doing the Arc convention or approximating its NOT the same as the percentage change of Q over Percentage change over P we usually use....it's a variation of that with the midpoint used instead of the initial value. |