I am a bit confused as to which way round the CFA accepts answers for PED. When you calculate PED, the answer is almost always negative, however it is common practice to just express this answer as a positive number (as it is almost always negative). Does anyone know which way round CFA accepts as the correct answer? Schweser has been inconsistent, sometimes accepting the positive as correct, sometimes the negative. And they almost always have a + and - version of the same number to confuse you. Thanks, Sarah
The magnitude of the change is what matters here, the sign is irrelevant. Take the absolute value and if it is greater than 1, it’s elastic, less than 1, inelastic. Same goes for unit elasticity- either 1 or -1 implies unit elasticity.
I realise that it is the magnitude that matters when determining whether the good is elastic or inelastic. But, I need to know which answer they accept. Assume that the answer is -1.23, and they have the options -1.23 and 1.23 as answers, which one is correct? Technically, the -1.23 is correct, but commonly this would just be expressed as 1.23. I guess I would pick the negative one if it came down to it but I have been marked incorrect (on Schweser) for this before.
That’s strange, on pg. 11 of the CFA economics text the book clearly states that they care about the absolute value. I doubt that will come up on the exam, but for schweser, I would agree with the negative value- an increase in price will lead to a decrease in quantity demanded for a normal good.
on demand curve price and quantity always move in opposite direction (except for perfectly inelastic/elastic), thats why sign should not matter in calculating PED. I think, if there is both +ve and -ve option for correct answer, -ve is correct one
positive see cfatext book page11
i have absolutely no finance background, infact from life-science, and have neither any finance relevant work experiance…have been coaxed by a friend to join the CFA and have enrolled for level 1, do u think i stand any chance? i am studying but finding it difficult? also will passing help coz i ahve no practical knowledge
Sarah, I’ve wondered the exact same thing. I would have thought it’s better to go with negative since that is technically right…