The table below shows the scale of preference of a student – Mr. Smith whose disposable income is $ 7.00. Use the information in the table below to answer the questions that follow:
Items needed |
Price ($) |
Textbook
Shirt
Shoes
Trouser
Notebook
School fees
Mattress |
5.00
2.00
3.00
3.00
1.00
7.00
10.00 |
(i) What will Mr. Smith spend his money on?
(ii) Explain your answer in in 2(a) (i).
(b) (i) What is the opportunity cost of Mr. Smith’s decision in 2(a)(i) ?
(ii) Explain your answer in 2(b) (i).
(c) (i) If Mr. Smith’s disposable income increases to $ 10.00, what will he spend it on?
(ii) What is the opportunity cost of the decision in 2(c)(i)?
(d). Define “scale of preference” and “opportunity cost”.
(e). What is the importance of a scale of preference?