Easy Quant Question ;-)

The headline was just an insider joke. It’s an econ question… Which of the general statement ist most likely wrong? a) The higher the price, the higher the absoute price elasticy of demand. b) A monopoly can be a natural monopoly. c) Private spendings (investments) increase if the real interest rates fall. d) Keynes believes in demand pulled economies.

So when you were in grade school, did people pick on you?

:slight_smile: They never dared and on you, Joey?

Or…they well making you… “An offer that you cant refuse…”

i just have a personal sense of humor. and if some people (i don’t mean you or Joey) continue in attacking other community members, they shouldn’t complain if they “sometimes” get a response. (Who ever they attack) But this thread is really ment as a discussion econ thread and nothing else.

A should be the answer. (a) Depends on goods having close substitutes. If there’s no substitutes (see gas prices), revenue of suppliers still go up, even if the demand goes down at prices increase (b) Monopolies can be natural (economies of scale) © Investments do increase at real interest rate fall because real (not nominal) interest rates are determinants of investment (d) “Demand creates its own supply” said Keynes, true, some government intervention might be needed.

but in general, upper region of a downward sloping demand curve is more elastic compared to the lower. by elimination, I’d have guessed D

@map Thanks for reply. You score the point, although your explanation has still a minor problem: The answer says nothing about cross price elasticities. May be you have a better explanation. @Joey: Do you remember the 6point mail you wrote (in January) to wyantjs that made him tilt out. You wrote 6 points = 6 big bullits and you shot all of them at him without hesitating.

I’m not into getting the exact explanation for the answer, I’m into understanding the cause and the effect. Since statement (a) is not always true, that’s enough ground for me to reject it. So, I was right? thunderanalyst, that’s true, but you have to consider the total revenue test. Or at least that’s how I thought of it.

it’s A) @thunder / map “upper region of a downward sloping demand curve is more elastic compared to the lower.”, from thunder that’s only true for linear, negative relationships… Consider: x=1/p^2 or x=p (an individual Giffen good) Calculate price elasticity and you will see. @ Joey Just for you to remember: 1) Fama developed efficient market hypothesis not Markowitz 2) Markowitz developed modern portfolio theory at least at first using nothing about the underlying characteristics of the securities except that stationarity and the first two moments 3) It’s “Markov processes” not “Markov sequences” 4) Derivatives were invented long, long before Markowitz. There is good evidence of Chinese and Babylonians using forwards contracts thousands of years ago. In more recent times, one of my favorite derivatives are Civil War cotton bonds that are something like commodity linked bonds with all kinds of payment options including exchange for cotton. 5) There are no arbitrage-free assumptions in any derivatives I know about. Existence of a risk-neutral measure implies that the market is arbitrage-free but that’s about math not real derivatives. and especially 6) “no rational investor would make a decision if he did not think that all material information was available” - Say, what? --> and after the following answer of this poor guy you knocked him with a hard right punch.

@map/thunder Satisfied with the answer?

I’m not that smart, don’t pick on me.


I’m still laughing about your last post, map1… Great sense of humour - really.

thread closed