CFA Level 1 – Economics with all Correct & 100%
Verified Answers |Actual Complete Exam |Already
Graded A+
Price Elasticity of Demand Formula ✔Correct Answer-(% Change in Quantity Demanded) / (%t
Change in Price)
Cross Elasticity of Demand Formula ✔Correct Answer-(% Change in Quantity Demanded) / (%
Change in Price of Substitute or Complement)
Income Elasticity of Demand Formula ✔Correct Answer-(% Change in Quantity Demanded) / (%
Change in Income)
Price Elasticity of Supply Formula ✔Correct Answer-(% Change in Quantity Supplied) / (% Change in
Price)
Elasticity of Demand Factors ✔Correct Answer-1) Availability of Substitute; 2) Relative amount of
income spent on the good; 3) Time SINCE price change
Elasticity of Supply Factors ✔Correct Answer-1) Available substitutes for resources (inputs) used to
produce the goods; (2) the time that has elapsed since the price change
Income elasticity of an Inferior Good- Positive or Negative ✔Correct Answer-Negative
Total Cost Formula ✔Correct Answer-= Total Fixed Cost + Total Variable Cost
Average Fixed Cost Formula ✔Correct Answer-Average Fixed Cost = TFC/Q
Average Variable Cost Formula ✔Correct Answer-Average Variable Cost= TVC/Q
Average Total Cost Formula ✔Correct Answer-= AFC + AVC
Unemployment Rate Formula ✔Correct Answer-(Number of Unemployed) / (Labor Force) x 100
Labor Force Participation Rate Formula ✔Correct Answer-(Labor Force) / (Working-Age
Population(16 or older) ) x 100
Employment to Population Ratio Formula ✔Correct Answer-(Number of Employed) / (Working-Age
Population) x 100
CPI Formula ✔Correct Answer-(Cost of Basket of Current Prices) / (Cost of Basket at Base Period
Prices) x 100
Inflation Rate Formula ✔Correct Answer-% change in CPI
(Current CPI- Year Ago CPI)/ (Year Ago CPI) X 100
Potential Deposit Expansion Multiplier Formula ✔Correct Answer-= 1 / (required reserve ratio)
,Potential Increase In Money Supply Formula ✔Correct Answer-= (Potential Deposit Expansion
Multiplier) x (Increase in Excess Reserves)
Money Multiplier for a change in monetary base Formula ✔Correct Answer-(1+c) / (d+c)
c = currency as a % of deposits
d = desired reserve ratio
Change in Quantity of Money Formula ✔Correct Answer-(Change in Quantity of Money) = (Change
in Monetary Base) x (Money Multiplier)
Equation of Exchange Formula ✔Correct Answer-= (Money supply) x (Velocity) = GDP = (Price) x
(Real Output)
Quantity Theory of Money Formula ✔Correct Answer-Price = M (V/Y)
What does it mean if Cross elasticity is positive ✔Correct Answer-Two goods are reasonable
substitutes for each other
What does it mean if Price Elasticity of Demand is less than one in absolute value? ✔Correct
Answer-Inelastic
What does it mean if Price Elasticity of Demand is greater than one in absolute value? ✔Correct
Answer-Elastic
Normal Goods Elasticity ✔Correct Answer-Positive Income Elasticity (greater than 1)
Total Revenue Test ✔Correct Answer-Estimate elasticity of demand:
P Up-> R Up (Inelastic);
P Up -> D Down (Elastic)
Cross Elasticity of Substitutes- Positive or Negative ✔Correct Answer-Positive
Income Elasticity for normal goods- Positive or Negative ✔Correct Answer-Positive
Income Elasticity for inferior goods- Positive or Negative ✔Correct Answer-Negative
Command System ✔Correct Answer-A central authority determines resource allocation, is used in
centrally planned economies and is also used within firms and in the military
Majority Rule ✔Correct Answer-Government policies such as taxation and transfer payments are
an example of this type of resource allocation
Efficient allocation of resources ✔Correct Answer-Marginal Benefit to society (Demand) = Marginal
Cost for the "last" unit of each good and service to be produced (Supply). (MC = MB)
Marginal Cost Formula ✔Correct Answer-(Change in Total Cost) / (Change in Output)
Two Concepts of Robert Nozick's Anarchy, State, and Utopia (Symmetry) ✔Correct Answer-1)
Governments must recognize and protect private property; 2) Private property must be given from
one party to another only when it is voluntarily done
, When demand is less elastic than supply- consumers bear higher or lower burden ✔Correct
Answer-HIGHER
When supply is less elastic than demand- consumers bear higher or lower burden ✔Correct
Answer-LOWER, suppliers will bear a higher burden
Inelastic means more or less DWL ✔Correct Answer-Less
Three Constraints to Profit Maximization ✔Correct Answer-TMI 1) Technological, 2) Informational,
3) Market Constraints
Technological Efficiency ✔Correct Answer-Output from least inputs
Economic Efficiency ✔Correct Answer-Output from least cost
Two ways that firms can organize production ✔Correct Answer-CI 1) Command System, 2)
Incentive System
Command Systems ✔Correct Answer-Organization according to a managerial chain of command,
eg US Military [Told what to do]
Incentive System ✔Correct Answer-Senior mangement creates a system of rewards intended to
motivate workers to perform in such a way as to maximize profits [Motivated to do]
Principal- Agent Problem ✔Correct Answer-Problems that arise when incentives and motivations
or managers and workers (Agents) are not the same as the incentives and motivations of their firms.
Three Methods used to reduce Principal-Agent Problem ✔Correct Answer-OIL 1) Ownership, 2)
Incentive Pay, 3) Long-term contracts
Three Types of Business Organizations ✔Correct Answer-PPC 1) Proprietorships, 2) Partnerships, 3)
Corporations
Four Types of Economic Markets ✔Correct Answer-PMOM 1) Perfect Competition, 2) Monopolitic
Competition, 3) Oligopoly, 4) Monopoly
Four-Firm Concentration Ratio ✔Correct Answer-The percentage of total industry sales made by
the four largest firms in the industry. A highly competitive industry may have a four-firm
concentration ratio near zero, while the ratio for monopoly is 100%,
< 40% = Competitive Market,
>60% is Oiligopy
Herfinhahl-Hirschman Index (HHI) ✔Correct Answer-Calculated by summing the squared
percentage market shares of the 50 largest firm in an industry (or all of the firms in the industry if
there were less than 50). The HHI is very low in a highly competitive industry and increases to 10,000
(=100squared) for an industry with only one firm.
An HHI between 1,000 and 1,800 is considered moderately competitive, while an HHI greater than
1,800 indicates that it is not competitive
HHI greater than 1,800 ✔Correct Answer-NOT Competitive
Verified Answers |Actual Complete Exam |Already
Graded A+
Price Elasticity of Demand Formula ✔Correct Answer-(% Change in Quantity Demanded) / (%t
Change in Price)
Cross Elasticity of Demand Formula ✔Correct Answer-(% Change in Quantity Demanded) / (%
Change in Price of Substitute or Complement)
Income Elasticity of Demand Formula ✔Correct Answer-(% Change in Quantity Demanded) / (%
Change in Income)
Price Elasticity of Supply Formula ✔Correct Answer-(% Change in Quantity Supplied) / (% Change in
Price)
Elasticity of Demand Factors ✔Correct Answer-1) Availability of Substitute; 2) Relative amount of
income spent on the good; 3) Time SINCE price change
Elasticity of Supply Factors ✔Correct Answer-1) Available substitutes for resources (inputs) used to
produce the goods; (2) the time that has elapsed since the price change
Income elasticity of an Inferior Good- Positive or Negative ✔Correct Answer-Negative
Total Cost Formula ✔Correct Answer-= Total Fixed Cost + Total Variable Cost
Average Fixed Cost Formula ✔Correct Answer-Average Fixed Cost = TFC/Q
Average Variable Cost Formula ✔Correct Answer-Average Variable Cost= TVC/Q
Average Total Cost Formula ✔Correct Answer-= AFC + AVC
Unemployment Rate Formula ✔Correct Answer-(Number of Unemployed) / (Labor Force) x 100
Labor Force Participation Rate Formula ✔Correct Answer-(Labor Force) / (Working-Age
Population(16 or older) ) x 100
Employment to Population Ratio Formula ✔Correct Answer-(Number of Employed) / (Working-Age
Population) x 100
CPI Formula ✔Correct Answer-(Cost of Basket of Current Prices) / (Cost of Basket at Base Period
Prices) x 100
Inflation Rate Formula ✔Correct Answer-% change in CPI
(Current CPI- Year Ago CPI)/ (Year Ago CPI) X 100
Potential Deposit Expansion Multiplier Formula ✔Correct Answer-= 1 / (required reserve ratio)
,Potential Increase In Money Supply Formula ✔Correct Answer-= (Potential Deposit Expansion
Multiplier) x (Increase in Excess Reserves)
Money Multiplier for a change in monetary base Formula ✔Correct Answer-(1+c) / (d+c)
c = currency as a % of deposits
d = desired reserve ratio
Change in Quantity of Money Formula ✔Correct Answer-(Change in Quantity of Money) = (Change
in Monetary Base) x (Money Multiplier)
Equation of Exchange Formula ✔Correct Answer-= (Money supply) x (Velocity) = GDP = (Price) x
(Real Output)
Quantity Theory of Money Formula ✔Correct Answer-Price = M (V/Y)
What does it mean if Cross elasticity is positive ✔Correct Answer-Two goods are reasonable
substitutes for each other
What does it mean if Price Elasticity of Demand is less than one in absolute value? ✔Correct
Answer-Inelastic
What does it mean if Price Elasticity of Demand is greater than one in absolute value? ✔Correct
Answer-Elastic
Normal Goods Elasticity ✔Correct Answer-Positive Income Elasticity (greater than 1)
Total Revenue Test ✔Correct Answer-Estimate elasticity of demand:
P Up-> R Up (Inelastic);
P Up -> D Down (Elastic)
Cross Elasticity of Substitutes- Positive or Negative ✔Correct Answer-Positive
Income Elasticity for normal goods- Positive or Negative ✔Correct Answer-Positive
Income Elasticity for inferior goods- Positive or Negative ✔Correct Answer-Negative
Command System ✔Correct Answer-A central authority determines resource allocation, is used in
centrally planned economies and is also used within firms and in the military
Majority Rule ✔Correct Answer-Government policies such as taxation and transfer payments are
an example of this type of resource allocation
Efficient allocation of resources ✔Correct Answer-Marginal Benefit to society (Demand) = Marginal
Cost for the "last" unit of each good and service to be produced (Supply). (MC = MB)
Marginal Cost Formula ✔Correct Answer-(Change in Total Cost) / (Change in Output)
Two Concepts of Robert Nozick's Anarchy, State, and Utopia (Symmetry) ✔Correct Answer-1)
Governments must recognize and protect private property; 2) Private property must be given from
one party to another only when it is voluntarily done
, When demand is less elastic than supply- consumers bear higher or lower burden ✔Correct
Answer-HIGHER
When supply is less elastic than demand- consumers bear higher or lower burden ✔Correct
Answer-LOWER, suppliers will bear a higher burden
Inelastic means more or less DWL ✔Correct Answer-Less
Three Constraints to Profit Maximization ✔Correct Answer-TMI 1) Technological, 2) Informational,
3) Market Constraints
Technological Efficiency ✔Correct Answer-Output from least inputs
Economic Efficiency ✔Correct Answer-Output from least cost
Two ways that firms can organize production ✔Correct Answer-CI 1) Command System, 2)
Incentive System
Command Systems ✔Correct Answer-Organization according to a managerial chain of command,
eg US Military [Told what to do]
Incentive System ✔Correct Answer-Senior mangement creates a system of rewards intended to
motivate workers to perform in such a way as to maximize profits [Motivated to do]
Principal- Agent Problem ✔Correct Answer-Problems that arise when incentives and motivations
or managers and workers (Agents) are not the same as the incentives and motivations of their firms.
Three Methods used to reduce Principal-Agent Problem ✔Correct Answer-OIL 1) Ownership, 2)
Incentive Pay, 3) Long-term contracts
Three Types of Business Organizations ✔Correct Answer-PPC 1) Proprietorships, 2) Partnerships, 3)
Corporations
Four Types of Economic Markets ✔Correct Answer-PMOM 1) Perfect Competition, 2) Monopolitic
Competition, 3) Oligopoly, 4) Monopoly
Four-Firm Concentration Ratio ✔Correct Answer-The percentage of total industry sales made by
the four largest firms in the industry. A highly competitive industry may have a four-firm
concentration ratio near zero, while the ratio for monopoly is 100%,
< 40% = Competitive Market,
>60% is Oiligopy
Herfinhahl-Hirschman Index (HHI) ✔Correct Answer-Calculated by summing the squared
percentage market shares of the 50 largest firm in an industry (or all of the firms in the industry if
there were less than 50). The HHI is very low in a highly competitive industry and increases to 10,000
(=100squared) for an industry with only one firm.
An HHI between 1,000 and 1,800 is considered moderately competitive, while an HHI greater than
1,800 indicates that it is not competitive
HHI greater than 1,800 ✔Correct Answer-NOT Competitive
