- CFA Exams
- CFA Level I Exam
- Study Session 4. Economics (1)
- Reading 12. Topics in Demand and Supply Analysis
- Subject 2. Elasticities of Demand
CFA Practice Question
If the price of tickets to Disney World increases from $30 to $33 and as a result attendance falls by 5 percent, the demand for the tickets is ______.
A. inelastic
B. indeterminate
C. elastic
Explanation: The percentage change in price is: (33-30)/[(30+33)/2] = 9.5%. Since the percentage change in demand was 5 percent, demand is characterized as inelastic; the percentage change in price was greater than the subsequent percentage change in demand.
User Contributed Comments 6
| User | Comment |
|---|---|
| Gina | percentage change in price [(33-30)/31.5]x100 = 9.5%. price increase 9.5%, demand decrease 5% E=1/2, hence inelastic demand |
| geet | I agree. |
| wink44 | Price Change % > Quantity Change % ... inelastic |
| jgraham6 | Tricky! |
| viannie | Just do the math ... I eyeball it but safer to just do the math ;) Elasticity = % change in Qty / % change in Price = 5% / 9.5% = 0.5 (about) so it is less than elasticity of 1, that means it is inelastic! |
| petervinh18 | PEoD = % change in quantity demand / % change in price % change in quantity demand = 5% % change in price = (NewPrice-OldPrice)/OldPrice = (33-30)/30 = .10 PEoD = 5% / .1 = .5 < 1; inelastic |