CFA Practice Question

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CFA Practice Question

If the price of good X triples and the demand for good Y decreases, then ______

A. X and Y are substitutes.
B. X and Y are inferior goods.
C. X and Y are complements.
D. X and Y are abnormal goods.
Correct Answer: C

In this case, the cross elasticity of demand between goods X and Y are negative. This indicates that the goods are complements.

User Contributed Comments 5

User Comment
schweitzdm I understand the logic behind this, however, please refer to the pizza example in the notes for this LoS. It notes that soda is a complement for pizza.

Technically, wouldn't X be the only complement in this scenario?
Kennyk11 To stick with the LOS example, it is versa, pizza is a compliment for soda. If the price of pizza had gone up, the quantity demand of soda would have gone down as well. Therefore, even in this example, X and Y are BOTH affected, just as pizza and soda BOTH affected each other. Hence the usage of the word "complement", since their respective changes "complement" each other.
Kennyk11 I hope that made sense... In a nutshell, they are both complements of each other!
choas69 x is gasoline and y is automobile.
Huricane74 Another good example is a hamburger and fries.

If the price of a hamburger increases by 3 times, then people will stop buying hamburgers and substitute pizza or tacos.

However, if hamburger sales decline, then sales of fries will also decline because people buy fries when they buy a burger. So if fewer people are buying a burger, fewer people will stop buying fries.
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