- CFA Exams
- CFA Level I Exam
- Study Session 4. Economics (1)
- Reading 12. Topics in Demand and Supply Analysis
- Subject 3. Substitution Effect, Income Effect, Normal and Inferior Goods
CFA Practice Question
For an inferior good, ______
A. the price elasticity of demand is negative; the income elasticity of demand is negative.
B. the price elasticity of demand is positive; the income elasticity of demand is negative.
C. the price elasticity of demand is negative; the income elasticity of demand is positive.
Explanation: For an inferior good, demand falls as income increases; the quantity demanded falls as price increases. This means the income elasticity and the price elasticity will both be negative.
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