Scale of Preference and Opportunity Cost

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

Topics in Economics

Types of capital market: Primary market and secondary market Capital market explained with its functions Basic tools for economic analysis: Graphs explained with its characteristics and importance Basic tools for economic analysis: Tables explained with its characteristics and importance 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 What is a Market in Economics? Elasticity of supply explained with its types Supply Elasticity: Elasticity of Supply explained

Academic Questions in Economics

Please click here to see all Questions and Answers

_____ is defined as a gradual and sustained rise in price level of goods and services in relation to their availability.

  • A. Basis Point Rate

  • B. Hike Rate

  • C. Elastic Supply

  • D. Elasticity of Price

  • E. Price Inflation

  • F. Aggregate Supply

The wholesalers can bring about an economy of scale.

  • A. True

  • B. False

Which of the following statement isn't a characteristics of the wholesaler?

  • A. They may have to operate in specific areas or regions accorded them by the producer

  • B. They are often popular in the line of goods they supply

  • C. They are not risk bearers

  • D. They have good storage facilities

  • E. They often pay for goods supplied by the manufacturers in advance

  • F. They usually have business agents or brokers

The wholesalers act as the middlemen in supply chain.

  • A. True

  • B. False

Large retailers who buy directly from manufacturers are termed as _____.

  • A. Wholesale Retailers

  • B. Certified Retailers

  • C. Codified Retailers

  • D. Commodity Retailers

  • E. Manufacturers Retailer

  • F. Conspicuous Retailers

_____ is a market whereby the sellers buy goods in lesser quantities from the wholesalers and sells in bits to the final consumers.

  • A. Commodity

  • B. Retail

  • C. Wholesale

  • D. Labour

  • E. Common

  • F. General

Which of the following is not a financial market?

  • A. Money Market

  • B. Bond Market

  • C. Foreign Exchange Market

  • D. Virtual Market

  • E. Capital Market

  • F. Stock Exchange Market

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

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.

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 two. These are:


Explicit Cost

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 respectively; and they deliver you some money weekly from the car.

We can conclude that your explicit 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.

In the above instance, if you had not utilized your 2 million Naira in the way of explicit cost, then you may as well have donated it to a motherless baby home; but doing this nullifies it as an explicit cost. However, if the donation to a motherless baby home becomes your next best alternative which you could not achieve (as a result of buying both cars), then such unachievable donation becomes your explicit opportunity cost since this is what you would have done if you hadn't bought both cars.

Explicit cost involve the outflow of cash or other resources of yours to be used as factors of production. However, always understand that the next best alternative which you could not achieve with the outflow of cash becomes your explicit opportunity cost.

Explicit 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 Cost

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 both 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 cost.

Please read on how to start a home based fish farming here.

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

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

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

Please read on the differences between bookkeeping and accounting here.

Implicit cost are sometimes referred to as 'imputed costs'.

With regards to the above instance, the implicit opportunity cost will become the comfort and pleasure which the you may have enjoyed from something else aside both cars. For instance, you could have chose comfort in a private jet instead of both cars. The point is:

You did not buy the private jet and could not enjoy its comfort, hence making it your implicit opportunity cost.

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Amazing facts in Economics

Notable points in Economics

A unitary elasticity of supply is seen when a change in price brings about a corresponding and proportional change in the quantity of goods or services supplied.

The graph below shows a unit elasticity of supply:
Unit Elastic Supply Curve - Len Academy

Below is an instance of a unitary elasticity of supply:

  • If a 100% increase in the price of wheat translates into a 100% increase in the production and supply of wheat, then the supply elasticity is said to be unitary elastic and its value is equal to 1.

Unitary elasticity is always equal to 1, that is: Es = 1

The supply curve runs diagonally and will pass through the center.

Supply elasticity is defined as the rate at which an increase in price of goods translates into its increased production and availability in the market. Supply elasticity is also termed as price elasticity of supply.

Consider the statements below:

  • If a 100% increase in the price of rice translates into a 100% increase in the production and supply of rice, the supply elasticity is said to be unitary elastic and its value is equal to 1.

  • If a 100% increase in the price of rice translates into a 50% increase in the production and supply (quantity) of rice, the supply elasticity is said to be inelastic and its value will be greater than zero and less than 1. In this case, the exact value is 0.5: (value of change in the quantity of rice divided by value of change in price of rice = 50/100 = 0.5).

  • Please read on supply elasticity here

The individual demand schedule is a table that shows the demand of a commodity that an individual (consumer) purchased at various prices, and at a particular time.

The table below shows an individual demand schedule:

Price in Naira (of a tuber of yam)

Quantity demanded (per week)











The market demand schedule is also referred to as an aggregate demand schedule, total demand schedule or composite demand schedule.

This is a table that shows the different commodities purchased by all the consumers or customers in the market.

The market demand schedule is the summation of the individual demand schedules, showing the demand of different customers for a commodity at a particular price. It is shown in the table below:

Unit price of commodity (Naira)

Quantity demanded by consumer A (QA)

Quantity demanded by consumer A (QB)

Market demand (QA +  QB)






















From the above table, notice that when the unit price of the commodity was 50 Naira, consumer A demanded 20 quantities while consumer B demanded 15 quantities.

Please read more on demand schedule here.

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.