(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
Explanation
(a)(i) Scale of Preference is a tool for the arrangement of wants in order of priority.
(ii) It also enables individuals, firms and government to make rational choices in the list of wants.
(iii) It facilitates optimum allocation of resources.
(iv) It enables economic agents to maximize their satisfaction.
(b) Opportunity cost is the real cost. It is the alternative forgone. e.g. if a car is purchased instead of erecting a building, the opportunity cost is the building forgone.
(c)(i) The opportunity cost is the pair of shoe, which is the forgone alternative
(ii) The opportunity cost is the maize that could have realized 25,000.00