CFA Level 1 Complete Mega Study Guide Review, Over 1900 Terms with Rationales 2023 Update

CFA Level 1 Complete




CFA Level 1 Complete Mega Study Guide
Review, Over 1900 Terms with
Rationales 2023 Update

, CFA Level 1 Complete




Private value auctions - Answer: Value is subjective and different to each bidder


Ascending price (English) auction - Answer: Bidders can bid amounts greater than
the previous bid, and the bidder that first offers the highest bid wins the item and
pays the amount


Sealed bid auction - Answer: Each bidder submits one bid, which is unknown to
the other bidders and the bidder with the highest bid wins the item and pays the
price;
The reservation price is the highest price that a bidder is willing to pay;
The optimal bid for the bidder with the highest reservation price is just slightly
above the bidder with the second highest reservation price;
Bids are not necessarily equal to reservation price


Second sealed bid auction (Vickrey auction) - Answer: The bidder with the highest
bid wins the item but pays the price bid by the second highest bidder;
No reason for a bidder not to bid his reserve price;
Similar to a an ascending price auction, the winning bidder tends to pay one
increment of price more than the bidder who values the time the second most


Descending price (Dutch) auction - Answer: Begins with a price greater than what
any bidder will pay and the price is reduced until a bidder agrees to pay it;
If there are multiple units available, each bidder and specify how many they want
to buy;

, CFA Level 1 Complete


Can be modified so that winning bidders all pay the same price


Price elasticity - Answer: How responsive the quantity demanded is to a change in
price


Elasticity of demand - Answer: A measure of how consumers respond to price
changes;
Perfectly elastic is when the demand curve is horizontal;
Perfectly inelastic is when the demand curve is perfectly vertical


Unstable equilibrium - Answer: When a supply curve intersects a demand curve
more than once, the unstable equilibrium is an equilibrium where supply can
increase towards another equilibrium that results in a lower price;
Caused by a nonlinear supply function


Statutory incidence - Answer: Who is legally responsible for paying a tax


Incidence of tax - Answer: Who ends up bearing the cost of a tax


Substitution effect - Answer: Always acts to increase the consumption of a good
that has fallen in price


Income effect - Answer: Either increase or decrease a good that has fallen in price;
Typical of normal good to have a positive income effect;
Typical of inferior good to have negative substitution effect

, CFA Level 1 Complete




Positive substitution, positive income - Answer: Consumption increases


Positive substitution, negative income smaller than positive substitution - Answer:
Consumption increases


Positive substitution, negative income greater than positive substitution - Answer:
Consumption decreases


Causes of demand changes - Answer: Income
Increases as prices of substitute goods increase
Decreases as the prices of complement goods increases


Causes of supply changes - Answer: Rises if technology increases;
Rises if input prices decrease


Giffen good - Answer: An inferior good for which the income effect outweighs the
substitution effect so that the demand curve is positively sloped (higher the price,
higher the demand)


Relationship cost curves - Answer: AFC slopes downward
Vertical distance between ATC and AVC equals AFC
MC initially declines, then rises
MC intersects AVC and ATC at their minimums
ATC and AVC are u-shaped