CFA CFA Level 1 Question of the Week – Economics

Question of the Week – Economics

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    • AdaptPrep

      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:

      • Increases
      • Decreases
      • Remains constant
    • AdaptPrep

      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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