- CFA Exams
- CFA Exam: Level I 2021
- Study Session 4. Economics (1)
- Reading 12. Topics in Demand and Supply Analysis
- Subject 3. Substitution Effect, Income Effect, Normal and Inferior Goods

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**CFA Practice Question**

This figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods. Which of the following points are on Bobby's demand curve for snacks?

B. p = 2, q = 5

C. p = 1, q = 20

A. p = 2, q = 10

B. p = 2, q = 5

C. p = 1, q = 20

Correct Answer: B

When their price is $2, he can buy 10 snacks. However, buying 5 snacks and 10 bottles of juice will yield a higher indifference curve.

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**User Contributed Comments**
8

User |
Comment |
---|---|

johntan1979 |
Seriously don't understand the answer. If budget is $20, then it can only be A or C where pq = $20 |

sapu |
He has to buy both goods, so if he buys all snacks( $20) he will left with nothing to buy juices.In A and C all is spent on snacks..Only in b option combinations are possible. |

gill15 |
All the points the graph above where the indifference curve intersects the budgent constraint curve are on the Demand Curve for Snacks(we're just changing the price of snack). The points P =0.5 , Q=10 from the intersection to the far right is also included as is the point P = 1 and Q=7 from the middle interection. |

Seancfa1 |
? |

Shaan23 |
This question is not difficult. 1. We're looking for the highest indifference curve 2. At P=2 - we know we're ONLY looking at the steepest budget constrain curve(First One). - On that curve at Q=10 the indifference curve would be way at the bottom - On that curve at Q=5 the indifference curve is much higher. 3. Check the last case which is P=1, which would be the budget constraint curve in the middle. - at Q = 20 the indifference curve is way at the bottom again. so we know its B |

schweitzdm |
Shaan23, how do you know which curve to examine given the P value? |

kay136 |
Another way to explain: A) price * quantity (2*10)= $20 to spend on snacks. no money to spend on juices- can't be right. B) p*q= $10. At a quantity of 5 snacks Bobby has left over money to buy the 10 juices. c) 1*20 = $20 again bobby has no money to buy juices if he buys 20 snacks at $1 each |

Freddie33 |
Bobby is yet another contribution to the global obesity crisis |