CIMA BA1 Common Mistakes & Exam Technique
BA1 mixes economics theory with financial mathematics, and most lost marks come from mixing up closely related formulas or definitions rather than genuinely not knowing the material.
1. Know which elasticity you're calculating, and its sign
Price, income and cross elasticity of demand test different relationships, and their signs carry meaning: a positive YED means a normal good, a negative one means inferior; positive XED means substitutes, negative means complements. Getting the ratio the right way round (percentage change in quantity over percentage change in the driver) matters as much as picking the right elasticity in the first place.
2. Simple interest and compound interest are not interchangeable
Simple interest applies the rate to the original principal every period; compound interest applies it to the growing balance, including previously earned interest. Using the wrong formula produces a plausible-looking but wrong answer, since the two only coincide in the first period.
3. Laspeyres price index uses base-year quantities as weights
A common error is weighting the index by current-year quantities instead of the base year's. Laspeyres specifically fixes the quantities at the base year so that only price changes are being measured — mixing this up with a current-weighted (Paasche) approach gives a different, wrong answer.
4. Correlation is not causation, and r is not r²
A strong correlation coefficient shows two variables move together, not that one causes the other. Separately, the coefficient of determination (r²) tells you the proportion of variation explained — don't quote r when the question asks for r², or vice versa; they answer different questions.
5. Percentage change, not absolute change, drives elasticity
Elasticity is always a ratio of percentage changes, never a ratio of absolute changes in units or currency. Calculating elasticity using raw differences instead of percentage differences is one of the most common numerical slips in this area.
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