CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

When John was in college and his income was low, he drank "Red Ribbon" beer. As his income increased, he purchased better-quality beer and less "Red Ribbon." Which graph in the following figure best represents John's Engel curve for "Red Ribbon" beer?

A. A
B. B
C. C
D. D
Correct Answer: D

User Contributed Comments 5

User Comment
tangyjab Why isn't the answer A?
tkemp2 This one seems like the previous example, however, at no point in time is "Red Ribbon" considered a normal good. The only reason John was purchasing it at lower income levels is because that is what he could afford. Graph D has him purchasing more of it at a lower income level and less of it at a higher income level. The previous example stated that the good could act as a normal good at some income levels and an inferior good at others...that's not the case for Red Ribbon here. The problem basically states that the higher his income, the less of it he is going to buy...hope that made sense
kseeba17 Why isn't Angel curve mentioned previously? Why are we paying AN if I constantly have to resort to google to explain stuff...
myron The Engel curve is almost a must-know concept in economics.
IatLs Thank you tkemp2. Your explanation is very helpful.
You need to log in first to add your comment.