Economics

Scale of Preference and Opportunity Cost

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

Topics 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 What is a Black Market, Its advantages and disadvantages


Academic Questions in Economics

Please check out our Test Your Knowledge page to see all Questions and Answers

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

The concept of  Ceteris Paribus Assumption in economics states that _____.

  • A. Supply and Demand are antagonistic

  • B. When given two choice of similar products with the same price (assuming all other factors are constant), you will prefer to buy that with a lower price

  • C. Supply and Demand are agonistic

  • D. When given two choice of dissimilar products with the same price (assuming all other factors are constant), you will prefer to buy that which you need most

  • E. When given two choice of similar products with the different prices (assuming all other factors are constant), you will prefer to buy that with a lower price

  • F. When given two choice of dissimilar products with the different prices (assuming all other factors are constant), you will prefer to buy that with a lower price

The willingness of a person to buy a specific quantity of goods or services at a given price and time is termed _____.

  • A. Scale of preference

  • B. Economies of scale

  • C. Opportunity Cost

  • D. Cost

  • E. Supply

  • F. Demand

Costs generally treated as expenses in business are termed _____.

  • A. Fixed cost

  • B. Variable cost

  • C. Sunk cost

  • D. Direct cost

  • E. Private cost

  • F. Outlay cost

When an entrepreneur pays cash (money) for materials needed for production, such money is termed as an _____ cost.

  • A. Accounting

  • B. Entrepreneurship

  • C. Economic

  • D. Outlay

  • E. Opportunity

  • F. Incremental

A government mandated maximum price for goods or services is termed _____.

  • A. Price height

  • B. Price maxima

  • C. Price ceiling

  • D. Price level

  • E. Price finale

  • F. Price top-zone

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

The above statement is attributed to the _____.

  • A. Law of price increase and price decrease

  • B. Law of product quantity

  • C. Law of demand

  • D. Law of supply

  • E. Law of quantity demanded and supplied in relation to price

  • F. Law of purchases on services and goods

LEN ACADEMY SMART SCHOOL SOFTWARE

Image

Read more on its smart academic features here

Please click here to kindly support education


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)

 Phone

 50,000

 Console Game

 120,000

 Laptop

 80,000

 Ipad

 100,000

 Smart watch

 85,000

 Ipod

 40,000

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.

Please click here to follow Len Academy on Google News.

Please like and follow our official facebook page here for great educational write-ups.

You can follow Len Academy on twitter here.Thank you.


Kindly share this article via the links below:


len

Alfred Ajibola is a Medical Biochemist, a passionate Academician with over 7 years of experience, a Versatile Writer, a Web Developer, a Cisco Certified Network Associate and a Cisco CyberOps Associate.


Please Register here or Login here to contribute to this topic by commenting in the box below.

CONTRIBUTE TO THIS TOPIC | ASK A QUESTION


Amazing facts in Economics


NOTABLE POINTS IN Economics

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 been utilized towards the economic growth of a Nation. For instance, schools and hospitals had been from 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

Consider the table below:

Needs / Wants

Cost (Naira)

 Phone

 50,000

 Console Game

 120,000

 Laptop

 80,000

 Ipad

 100,000

 Smart watch

 85,000

 Ipod

 40,000

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

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

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 into play.

Please read more on scale of preference and opportunity cost here.

Scale of Preference can be defined as the list of a person's needs or wants written in an order of importance. 📜✍️

When you have a limited amount of money and could only buy some of the items on your list (the top items on the list); then the remaining items that you didn't buy will be generally considered as your opportunity cost.

Opportunity cost can be defined as the value of the best alternative that a person could have achieved or bought but couldn't achieve after the best choice had been achieved.

Opportunity cost are of two types. They are:

  1. Explicit Opportunity Cost
  2. Implicit Opportunity Cost

Please read on scale of Preference, Opportunity cost and the types of Opportunity cost here