CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Suppose the quantity of x is measured on the horizontal axis. If the income consumption curve is vertical, then the income elasticity of demand for x is ______.
A. 0
B. 1
C. -1

User Contributed Comments 5

User Comment
Hamad333_1 no clue!
prapps same here
nzohoury if consumption curve is vertical then regardless of income you have the same demand. Maybe toothpaste is a good example. Ignoring the extreme lower end of the income range, we all consume the same amount of toothpaste. Therefore the demand is "perfectly" inelastic and slope of the demand curve is 0.
nzohoury The other two options would suggest you either consume more or less of the item based on change in income.
mvferri Think about elasticity of demand. 1 (or -1) is unit elastic. If the quantity of x is measured on the horizontal axis then this is a normal S/D chart. Therefore a vertical consumption (demand) curve of any kind (income, price, etc.) is perfectly inelastic or 0.
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