CFA Practice Question
When economists say a product is rationed to persons who value it most, they mean the product is allocated to those
A. willing to buy the product regardless of price.
B. willing to give up the highest percent of their income to buy the product.
C. willing to forego more consumption of other goods to buy the product.
Explanation: The consumer that is willing to pay the most for a good is the one who ends up consuming it. This is because the pricing system rations goods to the consumer who values it the most. Consumers are willing to pay a price just equal to how much they value the good.
User Contributed Comments 5
| User | Comment |
|---|---|
| Birdy101 | what is wrong with answer A? |
| chamad | Consumers are willing to pay a price just equal to how much they value the good and not whatever price as stated in A. |
| uviolet | value is not just price. value = marginal benefit derived. + in this case the products are rationed. so the logical conclusion is answer c |
| DMCV | Wouldn't the "value" drive the price upwards to the point which these individuals would buy the good at that price? I don't see a difference in B or C. I answered B, knowing that C was probably a more defined (more importantly correct) answer. However I still don't see the difference. |
| DMCV | ah, I see the difference now. Higher % of income is relative, as people have different incomes. I was assuming all had the same income and the question was just refering to theory. |