FREE CFA Level 1 sample questions everyday for December 2010 candidates

[naveen]

Can we answer the question in the forum itself?
If yes then its A

Nice initiative Team DG! Congrats on completing 1year!!!

@Optimistical
Why did you rule out B?

[neetu]

I also think it's A.

[Shailesh Otari]

Q#1 Answer: (A) Elasticity of demand is influenced by the time elapsed since a price change. The time frame within which the supply decision is made and the ability to substitute productive resources are factors that influence elasticity of supply.

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Today's Q (Question provided by Elan Guides)

Q#2: A good has a price elasticity of demand of 1.2. In response to an increase in price of 30%, quantity demanded will change from 150 units to:

A. 104.24
B. 195.76
C. 96
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[optimisticAL]

Its Clearly A.
Let me know if anybody needs explanation for this.

[Shivramakrishnan Iyer]

Its Clearly A.
Let me know if anybody needs explanation for this.

I disagree that it is A

Demand should logically drop by 36% which is 54 and the answer should be 96..Basically increase in price by 30% makes demand go down by 1.2*30% = 36%

[Shivramakrishnan Iyer]

To fundamentally understand look at it as an equation of a line Y = mx+c with c = 0 here as Price and demand have an inverse relation and hence the slope which is price elasticity of demand is -ve 1.2 so and as 1.2 is the price elasticity of demand basically

(demand1-demand2)/ (price1 - price 2) => y is demand here so based on Y=mx => demand drop is -1.2*30% = 36%..Sorry my explanation is mathematical in nature as my mind understands economics thru mathematics

[optimisticAL]

Yaa... you r correct...I think I made some mistake in calculation.
But grt explanation Shiva.

[anita123]

Thanx Shiva for the calculations and elaborate explanation!

[Shailesh Otari]

Q#2 Answer: (C) Price elasticity of demand = % change in Q / % change in price
-1.2 = x / 30%, x = -36%
-36% = (x - 150) / 150 giving x = 96.
Great explanation, Shiva

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Today's Q (Questions and answers provided by Elan Guides)

Q#3: 3. Which of the following most accurately describes efficient resource allocation in an unregulated economy?

A. Consumer surplus is maximized.
B. Consumer surplus equals producer surplus.
C. The sum of producer and consumer surplus is maximized.

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[Sriram Raju]

I think the consumer surplus should equal producer surplus.