2024 CFA Mock Test 1

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1. Movement along the demand curve for good X occurs due to a change in:

A．income.
B．the price of good X.
C．the price of a substitute for good X

Correct Answer: B

Notes:

The only factor that affects movement along the demand curve is the price of the good itself.

2. A wireless phone manufacturer introduced a next-generation phone that received a high level of positive publicity. Despite running several high-speed production assembly lines, the manufacturer is still falling short in meeting demand for the phone nine months after introduction. Which of the following statements is the most plausible explanation for the demand/supply imbalance?

A．The phone price is low relative to the equilibrium price.
B．Competitors introduced next-generation phones at a similar price.
C．Consumer incomes grew faster than the manufacturer anticipated.

Correct Answer: A

Answer Explanation:

The question shows that there is an oversupply of wireless phones. In other words which of the three options will cause an oversupply. When the price of telephones is below the equilibrium price. Then at this time as manufacturers are not willing to produce due to the price is lower than the equilibrium price, then the supply of phones is relatively low, on the contrary, consumers are more willing to buy the phones because they are cheaper than the equilibrium price, so that the demand is relatively large, which creates a situation of oversupply. If a competitor produces the next generation of mobile phones and sells them at a similar price, then instead of choosing this one to buy a mobile phone consumers will go to the competitor’s house to buy a mobile phone, then the sales of this good will decrease and this will make the supply exceed the demand. Consumers‘ income growth exceeding producers’ expectations may not necessarily increase the demand for this mobile phone, so it may not create a situation where supply exceeds demand either.

3. The demand and supply functions for a leading smartphone are furnished below: Qd = 1,000 – 20P + 2I;#Qs = –200 + 50P – 80W;#where,#d = Quantity demanded in number of units#Qssp = Quantity supplied in number of units# Psp = Price per smart phone in $#I = Household income in $ per year W = Wage rate in $ per hour#Currently, the firm has priced the smartphone at $250 per unit. If the wage is $10 per hour and the household income is $9,500 per year, the smartphone’s equilibrium price is closest to:

A．$250.
B．$300.
C．$425.

Correct Answer: B

Answer Explanation:

According to the question, the demand function can be written as: 1,000 – 20Psp + 2 × (9,500) = 20,000 – 20Psp. The supply function can be written: -200 + 50Psp – 80 × (10) = -1,000 + 50Psp. The equilibrium price, which is the price formed when supply equals demand, is 20,000 – 20Psp = -1,000 + 50Psp, giving Psp = – 21,000/-70 = $300.

4. The demand for membership at a local health club is determined by the following equation: Qdhm=400?5Phm where Qdhm is the number of health club members and Phm is the price of membership. If the price of health club membership is $35, the price elasticity of demand is closest to:

A．-0.778.
B．-0.500.
C．-0.438.

Correct Answer: A

Answer Explanation:

The question is known the demand function: Qdhm=400-5Phm, and also know Phm=35, which will be brought into the function equation to get Qdhm=400-5*(35)=225 at Phm=35, according to the formula of price elasticity:
Exam3 1

5. If the price elasticity coefficient of the demand curve for paper clips is equal to –1, demand is:

A．elastic.
B．inelastic.
C．unit elastic.

Correct Answer: C

Answer Explanation:

According to the definition of unit elasticity: price elasticity is equal to -1.

6. The market demand function for four-year private universities is given by the equationQdpr = 84 – 3.1Ppr + 0.8I + 0.9Ppuwhere Qdpr is the number of applicants to private universities per year in thousands, Ppr is the average price of private universities (in thousands of USD), I is the household monthly income (in thousands of USD), and Ppu is the average price of public (government-supported) universities (in thousands of USD). Assume that Ppr is equal to 38, I is equal to 100, and Ppu is equal to 18.The price elasticity of demand for private universities is closest to:

A．-3.1.
B．-1.9.
C．0.6.

Correct Answer: B

Answer Explanation:

The demand function is known in the question : Qdpr = 84 – 3.1Ppr + 0.8I + 0.9Ppu, and it is also known that Ppr = 38,I = 100, Pu = 18, which is brought into the functional equation to give Qdpr = 84 – 3.1(38) + 0.8(100) + 0.9(18) = 62.4 At Ppr = 38,according to the equation for price elasticity:
Exam3 2

7. Price elasticity of demand for a good will most likely be greater if:

A．there are no substitutes for the good.
B．consumers consider the good as discretionary.
C．consumers spend a small portion of their budget on the good.

Correct Answer: B

Answer Explanation:

This question examines the factors affecting price elasticity, and there are three ①Availability of substitutes, if there are good substitutes, the price elasticity is relatively large ②Portion of income spent on a good , the larger the proportion of income, the greater the price elasticity ③Time. Adjustment of price changes takes a long time, the elasticity is relatively large. Consumers believe that the commodity is at their disposal, considering the third influence, the commodity is considered to be optional, indicating that this commodity to find substitutes, then its elasticity is also relatively large.

8. An individual’s demand for onions is given by the following equatio Qdo=3?0.05Po+0.009I?0.16Pt where Qdo is the number of onions demanded, Po is the price per pound of onions, I is the household income, and Pt is the price per pound of tomatoes. If the price of onions is $1.25, household income is $2,500, and the price of tomatoes is $3.75, the cross-price elasticity of demand for onions with respect to the price of tomatoes is closest to:

A．–1.0597.
B．–0.0242.
C．–0.0081.

Correct Answer: B

Answer Explanation:

The question knows the demand function : Qdo = 3 – 0.05Po + 0.009I – 0.16Pt, and also knows that Po = 1.25, I = 2,500, Pt = 3.75, which is brought into the functional equation to obtain Qdo = 3 – 0.05(1.25) + 0.009(2,500) – 0.16(3.75) = 24.8375 at Po = 1.25, Pt = 3.75 according to the formula for cross elasticity. 0.009(2,500) – 0.16(3.75) = 24.8375 at Po = 1.25, Pt = 3.75 according to the formula for cross elasticity:
Exam3 3

9. The market demand function for four-year private universities is given by the equationQdpr = 84 – 3.1Ppr + 0.8I + 0.9Ppu where Qdpr is the number of applicants to private universities per year in thousands, Ppr is the average price of private universities (in thousands of USD), I is the household monthly income (in thousands of USD), and Ppu is the average price of public (government-supported) universities (in thousands of USD). Assume that Ppr is equal to 38, I is equal to 100, and Ppu is equal to 18.The cross elasticity of demand for private universities is closest to

A．0.3.
B．3.1.
C．3.9.

Correct Answer: A

Answer Explanation:

The demand function is known in the question: Qdpr = 84 – 3.1Ppr + 0.8I + 0.9Ppu, and it is also known that Ppr = 38, I = 100, Pu = 18, which is brought into the functional equation to obtain Qdpr = 84 – 3.1Ppr + 0.8I + 0.9Ppu = 84 – 3.1(38) + 0.8(100) + 0.9(18) = 62.4 at Ppr = 38, Pu = 18 according to the equation for cross elasticity:
Exam3 4

10. If the cross -price elasticity between two goods is negative ,the two goods are classified as :

A．normal.
B．substitutes.
C．complements.

Correct Answer: A

Answer Explanation:

Cross elasticities are positive for substitutes and negative for complements.

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