Scale of Preference and Opportunity Cost

len Alfred Ajibola - Wed, 23rd January, 2019 @ 03:07:00 AM

Topics in Economics

Factors affecting population in economics Advantages of Inflation Disadvantages of Inflation Concept of Inflation in Economics Scheme of work for Economics, SS1, First Term Scheme of work for Economics, SS1, Second Term Scheme of Work for Economics, SS1, Third Term Functions of the Wholesaler Advantages and Disadvantages of the Wholesaler Wholesale Market: Who is a Wholesaler? Characteristics of the Wholesaler Retail Market: Who is a Retailer and Examples of Retailers Market: Types of Market Market - What is a Market in Economics? Elasticity of Supply: Types of Supply Elasticity Supply Elasticity: Elasticity of Supply explained Demand Schedule - Types of Demand Schedule Demand: What is Demand? Law of Demand Concept and Types of Cost Supply, Supply Curve and Law of Supply

Academic Questions in Economics

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A _____ market provides a platform whereby job seekers link up with employers in an attempt to be hired.

  • A. Wholesale market

  • B. Bond market

  • C. Physical market

  • D. Virtual market

  • E. Factor Market

  • F. Labor Market

Which of the following is not a type of market based on commodities bought and sold?

  • A. Wholesale market

  • B. Bond market

  • C. Physical market

  • D. Virtual market

  • E. Factor Market

  • F. Labor Market

According to economists, a market refers to a/an _____ comprising of various buyers and sellers carrying out business transactions.

  • A. Place

  • B. Location

  • C. Entire area

  • D. Online platform

  • E. Avenue

  • F. Axis

Primary market is a type of market based on _____.

  • A. Market structure

  • B. Demand

  • C. Supply

  • D. Commodities bought and sold

  • E. Channel of distribution

  • F. Internet and world wide web

Pice elasticity of supply - Len Academy

The above diagram on the quantity supplied against a change in price is _____.

  • A. Elastic

  • B. Inelastic

  • C. Perfectly Elastic

  • D. Perfectly Inelastic

  • E. Zero Elastic

  • F. Unitary Elastic

The rate at which an increase in the price of a product translate into the product's increased production and availability in the market is termed _____.

  • A. Demand

  • B. Supply

  • C. Demand Elasticity

  • D. Supply Elasticity

  • E. Demand Curve

  • F. Supply Curve

Concerning demand curve, which of the following statement is incorrect?

  • A. It is a graphical represention of a table showing the price of commodities and quantity demanded

  • B. It can be an individual demand curve

  • C. The x-axis shows the price of commodities

  • D. The price and quantity demanded are expressed on different axis of the graph

  • E. It can be a market demand curve

  • F. All the options are correct

A table that shows the price of a commodity and the quantity demanded is termed _____.

  • A. Price table

  • B. Demand table

  • C. Demanded-price table

  • D. Demand preference table

  • E. Demand graph

  • F. Demand schedule

Scale of Preference:

You may have made a scale of preference in one way or another.

Scale of Preference is often considered to be brought about by the insatiability of human wants and limitation of cash at hand.

Note: By insatiability, we mean that human wants can never be satisfied; and just like Oliver Twist, we keep asking for more.

Please read on Values here.

Take for instance, when you take a young girl (of about 10 years old) to the supermarket; the girl will likely request for so many beautiful things from that supermarket. This is entirely normal for her to do but the question is: what if you don't have enough money to buy them?

You can read on the Disadvantages of Money here.

A scale of preference can be defined as the list of a person's needs or wants written in an order of importance.

From the above question, you can quickly map out a scale of preference and buy her what you think is important or best for her. You can probably explain your actions to her later and hopefully she will understand and appreciate you for it.

Please read on Demand and Law of Demand here.

Consider the table below:

Needs / Wants

Cost (Naira)



 Console Game






 Smart watch




The above table shows us what a scale of preference would look like.

You will observe that the person puts his most important needs or wants at the top of the list. Further down the list are his less important needs.

Now, let's imagine that this individual has 170,000 Naira to spend. According to the above scale of preference, the followings can be deduced;

  • A phone will be considered to be the most important; and it costs 50,000. He buys the phone.
  • A console game according to this person is next in importance; and it costs 120,000. He buys the console game.

Another question worth asking is:

  • What happens to his other needs?

This is where the term "Opportinity Cost" comes in.

Opportunity cost is value of the best alternative that a person could have achieved or bought but did not achieve it after the best choice had been achieved.

Please read on the Concept and Types of Cost here.

Now, you can guess that the Laptop, Ipad, Smart Watch and Ipod will all be classified under the opportunity cost. This is because the individual could not buy them after he bought his best choices.

Note: Laptop, Ipad, Smart Watch and Ipod refers to opportunity cost in the above instance.

Opportunity cost may be put into 2. These are:


Explicit Opportunity Cost

Opportunity cost is considered to be explicit when a person's financial resources is used for business. (The resources used for business will always be in the form of cash). Consider the instance below:

  • Let's assume you have 2 million Naira, and decided to buy 2 cars. After the purchase of both cars, you gave out both to be managed by Mr. Tony and Mr. Bony; and they deliver you some money weekly from the car.

We can conclude that your explicit opportunity cost is the money (2 million Naira) spent on both cars; and that's because the cars were used as factors of production.

Please read more on production here.

Note: In the above instance, if you had not utilized your 2 million Naira in the way of explicit opportunity cost, then you may as well have donated it to a motherless baby home; but doing this nullifies it as an explicit opportunity cost. (That is, the 2 million naira no longer becomes an explicit opportunity cost).

Explicit opportunity cost involve the outflow of cash or other resources of yours to be used as factors of production.

Note: Explicit Opportunity Cost is sometimes referred to as out of pocket costs. and it may be recorded in the accounts book.

Please read on Journals here.

Other examples of explicit opportunity cost are money spent on wages, salaries and raw materials.


Implicit Opportunity Cost

Opportunity cost is considered to be implicit when there isn't any outflow of cash. Think of it this way:

Let's assume you own 2 cars and you directly use it yourself for your comfort and pleasure.

The truth is; you may have invested on both cars but you chose not to; and that's your implicit opportunity cost.

Please read on how to start a Home Based Fish Farming here.

We can thus say that an implicit opportunity cost does not require an outflow of cash and there isn't any returns of profit. It's what you already own and is being used by you.

An implicit opportunity cost is one where there isn't any form of cash outlay.

Implicit opportunity cost are not recognized by the accounting system since they belong to the owner.

Please read on the Differences between Bookkeeping and Accounting here.

Note: Implicit opportunity cost are sometimes referred to as imputed costs.

With regards to business, the implicit opportunity cost is the cost of the capital which the entrepreneur may have earned if he had invested somewhere else. The point is:

The entrepreneur did not invest somewhere else and that make's it an implicit opportunity cost.

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Amazing facts in Economics


Below are definitions of demand from the perspective of some notable professors:

The demand for goods is a schedule of the amounts that buyers would be willing to purchase at all possible prices at any one instant of a time.

Professor Mayers

Demand is the various quantities of goods that would be purchased per time period at different prices in a given market.

Professor Hibdon

The demand for anything, at a given price is the amount of it which will be bought per unit of time at the price.

Professor Benham

Generally, demand is defined as the willingness of a person, buyer or consumer to buy a specific quantity of goods or service at a given price and time.

From the above definitions, we can infer that the definition of demand is referenced to three major factors. These are:

  1. Quantity of Goods Demanded

  2. Price

  3. Time

Please read more on the concept of demand here.

In economics, we have various types of cost. These are:

  • Accounting cost

  • Economic cost

  • Outlay cost

  • Opportinity cost

  • Fixed cost

  • Variable cost

  • Direct cost

  • Indirect cost

  • Sunk cost

  • Incremental cost

  • Private cost

  • Social cost

Please read the explanations on the aforementioned types of cost here

A Black market is said to take place when there is illegal buying and selling of goods and services.

Black markets usually take place outside the government's rader and without government's knowledge so as to avoid tax or any other government regulations.

Black market presents the avenue for government prohibited goods like hard drugs, war weapons and firearms to be bought by criminals.

A black market can also occur on the web for cyber criminals or those who are involved in computer hacking. To achieve their malicious aim, these individuals will go into the dark web and purchase or rent their respective hacking tools for a fee. Normally, payments are made in crypto currencies.

However, a black market isn't generally considered as bad. Infact, it has its advantages and disadvantages.

Please read more on black market here

Below are some advantages of black market:

  • Goods and services are sold at a cheaper price.

  • It helps some people make plenty of money.

  • The illegal sales of human organs, for example, the sale of human kidneys have aided in saving some lives.

  • Some people actually depend on black market for their daily bread.

  • Some of the proceeds from black market may be utilized towards the economic growth of a nation. For instance, schools and hospitals had been built with money made from black market.

The law of supply states that:

The quantity of the supplied services or goods will increase as the price increases and they will decrease as the price decreases provided all other factors remain constant.

These constant factors are very important when stating the supply law. They include:

  • The price of input resources

  • The kind of technology used during production

  • The number of suppliers

  • The number of buyers; and so on.


A graph that shows the relationship between the price of a product or service, and its quantity supplied is the supply curve.

Supply curve can be defined as a graphical representation of the direct relationship between the prices of goods and services and the quantity supplied (of such goods and services) within a particular period of time provided all other factors remain constant.

Len Academy - Supply CurvePlease read more on the law of supply and supply curve here