CFA Practice Question

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.
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