CFA Practice Question
Suppose the price of apples is $0.49 per lb, and quantity demanded is 10 M lbs. Following a decrease in price to $.44 per lb, the quantity demanded rises to 11 million lbs. What is the elasticity of demand (calculate using averages rather than straight changes)?
A. 0.8857
B. 0.7982
C. -0.8857
Explanation: Elasticity = % change in demand / % change in price = (1 M lbs/10.5 M lbs)/($0.05/$0.465)
User Contributed Comments 3
| User | Comment |
|---|---|
| Kathkun | In the textbook, the formula includes an absolute notation because it is common practice to state price elasticity of demand as a positive number. This question provides the option of the negative value, which is more correct. |
| grew0001 | I'm chalking this question to the "ignore" pile |
| tferik | Quantity Demanded is always downward sloping and thus negative. I should have looked at the answers first, I would have saved time. |