- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Topics in Demand and Supply Analysis
- Subject 3. Substitution Effect, Income Effect, Normal and Inferior Goods
CFA Practice Question
The following figure shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his substitution effect?
A. 3
B. 7
C. 10
Explanation: 18 - 15 = 3
User Contributed Comments 4
| User | Comment |
|---|---|
| ybavly | This cant be right... his new budget line is B2 so it has to be 25 - 18 (or 15, its hard to read) Can anyone explain? |
| Shcote | Substitution is the key word |
| safash | New Budget line must be considered only for income effect |
| nirens | Ahhhhhh...! |