CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

If the long-run elasticity of demand for residential electricity is unitary, the short-run demand is likely to be ______.
A. about the same as the long-run elasticity
B. inelastic
C. elastic
Explanation: In the long run, price elasticity for a good tends to increase. This is because over time consumers are able to discover substitutes for the good and thus switch their consumption elsewhere under a price increase. If, in the long run, the price elasticity for electricity is unitary, it is likely that the price elasticity in the short run was inelastic.

User Contributed Comments 2

User Comment
andy4cfa Unitary elasicity means price elacity is equal to 1. If the long-run elasticity is equal to 1, the short-run elasticity must be less than 1, i.e. inelastic.
endurance think of the iPhone or the first Nokia's - first very expensive and price inelastic - in a few years they were or will be commodities and relatively more price elastic
You need to log in first to add your comment.