CFA CFA Level 1 Question of the Week – Economics

Question of the Week – Economics

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• Undecided
1

Economics

Nelly devotes her budget each week to both beans and beef. Beans are an inferior good costing \$1 per can. A pound of beef, a normal good, sets Nelly back \$5. As Nelly’s income increases from \$50 to \$75 per week, her consumption of beans most likely _____.

A. Decreases
B. Remains constant
C. Increases

Participant
• Undecided
4

The correct answer is A. As income increases, the consumption of an inferior good decreases.

Inferior goods, by definition, are purchased less as income increases. All you need to know is that beans are an inferior good and that Nelly’s income increases.

The situation illustrates why a good might be inferior — why might you buy less of it as you get more money? In this case, Nelly needs to eat something. She would rather have beef, but it is expensive. If Nelly has very little income, she may have to spend all her money on beans. As her income increases, she uses the excess money to switch her purchases over from beans to beef.

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Wow – i got pwned, i thought the question was asking about the better good. So I was right conceptually but was tricked by the question. By the looks of it, so did @CFAcharterwannabeâ€Œ. How did we get tricked in exactly the same manner?!?!

• sr2014
Participant
• CFA Level 1
4

I would be delighted, if I get question like this in the actual Exam.

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C, it will increase. Better income means increase in the usage of better goods. Right?

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@fabianâ€Œ i actually knew the correct answer. i just selected the wrong option lol. you can see from my explanation i got the logic right. this is something i will have to be really careful about in the exam now. i am going to triple check my answers now!

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A nice and easy basic economics question here Level 1 candidates! What is your answer (without referring to your books of course)?

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Increases…? This question did a good job of reminding myself of how much I’ve forgotten about L1.

• hairyfairy
Participant
• Undecided
2

Eeesh, spoilers. I read the @fabian’s and @CFAcharterwannabeâ€Œ’s comments before the question, haha.

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@PassedTenseâ€Œ, thanks for these questions! Just a suggestion: you should have them as polls so that we can select our own answers ðŸ™‚