Potential Mistake in CFAI Practice Exam

I don’t understand how the answer could be what they are saying, here it is, #33 of the morning session.

Demand for a good is most likely to be elastic when:

a) the good is a necessity

b) a lesser proportion of income is spent on the good

c) the adjustment to a price change takes a long time

How could C be the answer? I always thought if demand takes a long time to adjust, then it is inelastic!!!

Did you read the official answer? It doesn’t match to the question, I think. If you have more time for changing to another good, your demand is more elastic, than in the short run. But I don’t think that you can conclude, that in the reverse, the more time you generally need to adjust, the more elastic your demand is. I did only get to c) by excluding a) and b), which seemed obviously wrong to me.

I did the same as Ew. a) and b) are def wrong as in its impossible to suggest that they are the right answer. My thinking with c) is that its in reference to the time since the last price change in that the adjustment has only actually occured meaning the time since the response to the last price change is recent rather then when the actual change occured.

Hi,

Answer’s explanation mentioned in CFA’s answer sheet is wrong.

Plz go through below link/s…

http://www.youtube.com/watch?v=kS6MwMwPZnE&feature=plcp

or

http://www.linkedin.com/groups/Please-help-why-adjustment-price-4191443.S.116289839?qid=e77a109e-f995-426b-a71a-9b10ca23f5c0&trk=group_most_popular-0-b-ttl&goback=%2Egmp_4191443

Thanks and Regards,

Kailas Kale

Pristine

Ok I now see, the answer choice © is very very poorly phrased. At first I thought it was (B), thinking that if you do not spend much money on a good, it would be easy to adjust so therefore demand is elastic.

But here, choice © is stating that a price change has been made, and consumers are not immediately jumping on board with the price change purchasing as much of it as they used to, hence demand is elastic because consumers are not following the price change if it does not agree with them.

That is the only way I could make a case for © being the answer!!!

Ok I now see, the answer choice © is very very poorly phrased. At first I thought it was (B), thinking that if you do not spend much money on a good, it would be easy to adjust so therefore demand is elastic.

But here, choice © is stating that a price change has been made, and consumers are not immediately jumping on board with the price change purchasing as much of it as they used to, hence demand is elastic because consumers are not following the price change if it does not agree with them.

That is the only way I could make a case for © being the answer!!!