Theory question 103
Basic ConceptsSection B (answer four questions only from this section)
(a) Why is the scale of preference important?
(b) Explain the concept, opportunity cost.
(c) State the opportunity cost in each of the following actions: (i) A shirt was purchased for N500.00 instead of a pair of shoes. (ii) Onions were planted on a farm realizing N20,000.00 instead of maize that could have realized N25,000.00
Show the model answer
(a) A scale of preference lists wants in order of importance. It helps the consumer/firm/government to choose rationally with limited means, satisfy the most pressing wants first, avoid waste, get maximum satisfaction and plan spending; it shows the opportunity cost of each choice.
(b) Opportunity cost is the next best alternative given up (forgone) when a choice is made. Because resources are scarce, choosing one thing means doing without another; it is real cost, not money cost.
(c)(i) The pair of shoes forgone.
(ii) The maize (worth N25,000) that could have been grown.
Opportunity cost is the alternative forgone, not the money spent.