Scarcity and Choice

12 questions

All types12 Multiple choice7 Numeric3 Matching2

A student receives a cash gift of ₦5,000 and must choose between buying a prescribed Economics textbook and purchasing a new pair of shoes, both priced at ₦5,000. If the student decides to buy the textbook, what is the opportunity cost of this decision?

The pair of shoes foregone

The ₦5,000 cash paid for the textbook

An outward shift of the student's production possibility curve

The total utility gained from reading the textbook

Show answer & explanation

Answer: The pair of shoes foregone

Answer

The pair of shoes foregone

Opportunity cost represents the real cost of a choice, expressed in terms of the next best alternative foregone. Because purchasing the textbook means giving up the pair of shoes, the shoes represent the opportunity cost.

Step-by-Step Solution

Identify the scarce resource and the competing alternatives.

The student has a limited budget of ₦5,000 and two mutually exclusive wants: a textbook and shoes.

Scarcity of resources forces consumers to make a choice among competing wants.

Apply the definition of opportunity cost to the choice made.

By selecting the textbook, the student sacrifices the opportunity to own the pair of shoes.

Opportunity cost (real cost) is defined as the next best alternative foregone when a choice is executed.

Key Concept

Opportunity Cost vs Money Cost

Estimated Time:1m 0s

Question 2Question →

A farmer operating on a fixed piece of farmland can cultivate either yam or cassava according to the following production schedule:

Production Option	Yam (bags)	Cassava (bags)
P	100	0
Q	75	20
R	45	35
S	0	45

If the farmer changes production from Option Q to Option R, what is the opportunity cost of producing the additional 15 bags of cassava, expressed in bags of yam foregone?

Show answer & explanation

Answer: 30

Answer

The opportunity cost of producing 15 additional bags of cassava when moving from Option Q to Option R is 30 bags of yam foregone.

Moving production from Option Q to Option R increases cassava production by 15 bags (from 20 to 35 bags), but requires reducing yam production from 75 bags to 45 bags. The reduction of 30 bags of yam represents the real cost or opportunity cost of producing the additional cassava.

Step-by-Step Solution

Find the quantity of yam produced under Option Q.

Yam output at Option Q = 75 bags.

Option Q yields 75 bags of yam and 20 bags of cassava.

Find the quantity of yam produced under Option R.

Yam output at Option R = 45 bags.

Option R yields 45 bags of yam and 35 bags of cassava.

Subtract the yam output of Option R from Option Q to find the foregone alternative.

75 - 45 = 30 bags of yam.

Opportunity cost measures the quantity of the sacrificed alternative (yam) needed to gain more of another commodity (cassava).

Key Concept

Opportunity Cost in Production Schedules

Question 3Question →

A local government council has a fixed capital budget of ₦50 million and must choose between constructing a township road network and rebuilding a community healthcare center. If the council resolves to rebuild the healthcare center, what is the real cost of this economic decision?

The township road network that was foregone

The financial outlay of ₦50 million spent on the healthcare center

An outward shift of the local government's production possibility curve

The total satisfaction gained by community members from improved healthcare

Show answer & explanation

Answer: The township road network that was foregone

Answer

The township road network that was foregone

In economic analysis, real cost (or opportunity cost) refers to the real goods or services given up in order to obtain something else. By selecting the healthcare center, the local government sacrificed the opportunity to construct the township road network, making the foregone road network the real cost of the decision.

Step-by-Step Solution

Identify the scarce resource and competing alternatives

Resource is ₦50 million budget; alternatives are township road network vs community healthcare center.

Scarcity of resources necessitates making a choice between alternative uses.

Distinguish between money cost and real cost

Money cost is ₦50 million, while real cost is the sacrificed alternative (the township road network).

In economics, real cost is expressed in terms of the next best alternative foregone, not monetary expenditure.

Key Concept

Money Cost versus Real Cost

Question 4Question →

A manufacturing enterprise operates under a strict budget constraint of $\text{\mathbb{N}}20\text{ million}$ and must choose among three mutually exclusive capital projects: Project X yields an expected net profit of $\text{\mathbb{N}}35\text{ million}$ , Project Y yields an expected net profit of $\text{\mathbb{N}}28\text{ million}$ , and Project Z yields an expected net profit of $\text{\mathbb{N}}22\text{ million}$ . If the firm decides to execute Project X, which statement accurately articulates the fundamental economic relationship between scarcity, choice, and opportunity cost in this scenario?

Scarcity of capital forces the firm to make a choice, resulting in an opportunity cost equal to the

\text{\mathbb{N}}28\text{ million}

net profit foregone from Project Y.

Scarcity of capital forces the firm to make a choice, resulting in an opportunity cost equal to the

\text{\mathbb{N}}20\text{ million}

financial outlay required to execute Project X.

Scarcity of capital forces the firm to make a choice, giving rise to an opportunity cost of

\text{\mathbb{N}}50\text{ million}

, which represents the combined net profit of Projects Y and Z.

Selecting Project X shifts the firm's production possibility curve outward, eliminating the opportunity cost associated with unselected projects.

Show answer & explanation

Answer: Scarcity of capital forces the firm to make a choice, resulting in an opportunity cost equal to the $\text{\mathbb{N}}28\text{ million}$ net profit foregone from Project Y.

Answer

Scarcity of capital forces the firm to make a choice, resulting in an opportunity cost equal to the

\text{\mathbb{N}}28\text{ million}

net profit foregone from Project Y.

Because human wants exceed limited resources (scarcity), economic agents are compelled to make a choice based on a scale of preference. When Project X is chosen, the firm sacrifices the benefits of all other options. In economics, opportunity cost is defined specifically as the value of the next best alternative sacrificed—in this case, Project Y, which yields

\text{\mathbb{N}}28\text{ million}

Step-by-Step Solution

Identify the resource constraint and available options

The firm faces capital scarcity (limited to

\text{\mathbb{N}}20\text{ million}

) and must rank mutually exclusive options: Project X (

\text{\mathbb{N}}35\text{ million}

), Project Y (

\text{\mathbb{N}}28\text{ million}

), and Project Z (

\text{\mathbb{N}}22\text{ million}

Scarcity mandates that not all desired projects can be funded simultaneously, necessitating a scale of preference.

Determine the choice made and identify all foregone alternatives

The firm chooses Project X. The unselected alternatives are Project Y and Project Z.

Economic choice involves selecting the option that maximizes net benefit according to the scale of preference.

Calculate the opportunity cost by locating the next best alternative

The next best alternative sacrificed is Project Y, valued at

\text{\mathbb{N}}28\text{ million}

Opportunity cost is defined strictly as the value of the single highest-ranked alternative foregone when a choice is made under scarcity.

Key Concept

Relationship between Scarcity, Choice, Scale of Preference, and Opportunity Cost

Question 5Question →

A baker has a limited quantity of flour that can be used to produce either 20 loaves of bread or 5 cakes. If the baker decides to bake 5 cakes, what is the opportunity cost of this choice?

The 20 loaves of bread foregone

The monetary cost of buying the flour

The 5 cakes produced

The financial profit earned from selling the cakes

Show answer & explanation

Answer: The 20 loaves of bread foregone

Answer

The 20 loaves of bread foregone

Opportunity cost is defined as the real cost of a choice expressed in terms of the next best alternative foregone. Since the baker used the available flour to produce 5 cakes instead of 20 loaves of bread, the 20 loaves of bread represent the opportunity cost.

Step-by-Step Solution

Identify the choice made and the alternative sacrificed due to limited resources.

The baker chose to produce 5 cakes, which required all available flour, sacrificing the production of 20 loaves of bread.

Because resources are scarce, choosing one option means forfeiting the benefit of the next best alternative.

Key Concept

Opportunity Cost

Estimated Time:45s

Question 6Question →

An economy operates along a linear-segmented Production Possibility Curve with full employment of resources, producing only Solar Panels ( $S$ ) and Wind Turbines ( $T$ ). Its production schedule is given in the table below:

Combination	Solar Panels ( $S$ )	Wind Turbines ( $T$ )
P	100	0
Q	85	10
R	65	20
S	40	30
U	0	40

If the society decides to reallocate its scarce resources to increase the output of Wind Turbines from $10$ units to $30$ units, what is the average opportunity cost per unit of Wind Turbine gained, expressed in terms of Solar Panels foregone?

Show answer & explanation

Answer: 2.25

Answer

2.25

Moving from Combination Q to Combination S increases Wind Turbine production from

10

30

units (a gain of

20

units). Simultaneously, Solar Panel production falls from

85

40

units (a loss of

45

units). The opportunity cost per unit of Wind Turbine gained is the total number of Solar Panels foregone divided by the total Wind Turbines gained:

45 \div 20 = 2.25

Step-by-Step Solution

Determine initial output of Solar Panels at

10

units of Wind Turbines

10

Wind Turbines (Combination Q), Solar Panel production is

85

units.

Establishing the baseline production combination before reallocation.

Determine new output of Solar Panels at

30

units of Wind Turbines

30

Wind Turbines (Combination S), Solar Panel production is

40

units.

Establishing the ending production combination after reallocation.

Calculate total sacrificed Solar Panels and total gained Wind Turbines

Solar Panels foregone =

85 - 40 = 45

units. Wind Turbines gained =

30 - 10 = 20

units.

Opportunity cost measures the sacrifice of alternative output necessary to obtain additional units of the target output.

Calculate marginal/average opportunity cost per unit gained

Average Opportunity Cost =

\frac{45 \text{ Solar Panels}}{20 \text{ Wind Turbines}} = 2.25

Solar Panels per Wind Turbine.

Dividing total units foregone by total units gained provides the unit opportunity cost.

Key Concept

Marginal Opportunity Cost along a Production Possibility Curve

Question 7Question →

A state government with a fixed capital expenditure allocation of $\text{N}800\text{ million}$ must choose between two mutually exclusive development projects: constructing a regional specialist hospital costing $\text{N}800\text{ million}$ or building an agricultural processing export terminal costing $\text{N}750\text{ million}$ that is projected to generate substantial trade revenues. If the government selects and constructs the regional specialist hospital, what is the real cost (opportunity cost) of this decision?

The foregone agricultural processing export terminal and the trade benefits it would have yielded.

The total monetary expenditure of

\text{N}800\text{ million}

incurred to build the specialist hospital.

The

\text{N}50\text{ million}

unspent balance remaining from the allocated capital budget.

An inward contraction of the state's Production Possibility Curve caused by capital expenditure.

Show answer & explanation

Answer: The foregone agricultural processing export terminal and the trade benefits it would have yielded.

Answer

The foregone agricultural processing export terminal and the trade benefits it would have yielded.

In economics, scarcity forces decision-makers to choose among competing alternatives. The real cost (opportunity cost) of choosing one option is the satisfied need or benefit of the next best alternative that is sacrificed. By choosing to build the hospital, the government gives up the opportunity to build the agricultural processing export terminal and capture its trade benefits.

Step-by-Step Solution

Identify the fundamental economic problem presented in the scenario.

The state government faces scarcity of capital resources (

\text{N}800\text{ million}

available) and must make a choice between competing projects.

Scarcity necessitates choice, which gives rise to opportunity cost.

Distinguish between money cost and real (opportunity) cost.

The money cost is the financial outlay of

\text{N}800\text{ million}

. The real cost is the alternative project sacrificed.

Economic analysis defines real cost as the benefit of the next best alternative sacrificed when a choice is made.

Determine the specific opportunity cost of selecting the hospital project.

Selecting the hospital means completely forfeiting the construction and economic revenues of the agricultural processing export terminal.

The export terminal represents the next best alternative option sacrificed due to limited financial capital.

Key Concept

Difference between Money Cost and Opportunity Cost in Resource Allocation

Question 8Question →

Match each economic scenario in Column A with its corresponding economic concept in Column B.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Resource insufficiency corresponds to Scarcity; ordering wants by importance corresponds to Scale of Preference; selecting one item over another corresponds to Choice; and the foregone alternative corresponds to Opportunity Cost.

Each economic scenario correctly maps to its foundational economic concept: resource insufficiency defines Scarcity; prioritizing wants constitutes building a Scale of Preference; picking one item over another represents Choice; and the sacrificed alternative defines Opportunity Cost.

Step-by-Step Solution

Identify the fundamental cause of economic decision-making in the first scenario.

Insufficient resources to satisfy unlimited wants represents Scarcity.

Scarcity is the core reason individuals and societies must make economic decisions.

Analyze the preparation of a list based on priority in the second scenario.

Ordering items by importance represents a Scale of Preference.

A scale of preference helps decision-makers systematically satisfy their most urgent wants first.

Examine the act of selection in the third scenario.

Selecting a textbook over shoes represents Choice.

Because of scarcity, decision-makers are compelled to choose among competing wants.

Identify what is sacrificed in the fourth scenario.

The shoes given up represent the Opportunity Cost.

Opportunity cost is defined specifically as the alternative foregone when a choice is made.

Key Concept

Basic Economic Concepts: Scarcity, Choice, Scale of Preference, and Opportunity Cost

Question 9Question →

Match each economic scenario or description on the left with its corresponding foundational concept of scarcity and choice on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

The household listing wants by priority matches Scale of Preference; the government selecting one project over another matches Economic Choice; the foregone alternative worker sacrifice matches Real Cost (Opportunity Cost); and limited resources relative to unlimited desires matches Scarcity.

Each economic scenario corresponds precisely to its core foundational concept: listing unsatisfied wants by importance forms a scale of preference; selecting between mutually exclusive options due to resource limits demonstrates economic choice; the foregone alternative represents real cost (opportunity cost); and the fundamental imbalance between finite resources and infinite desires defines scarcity.

Step-by-Step Solution

Analyze the first scenario regarding listing wants in order of importance.

Identified as Scale of Preference.

A scale of preference is a list of unsatisfied wants arranged in order of relative priority.

Analyze the government's decision to pick one project over another.

Identified as Economic Choice.

Choice is the act of selecting among alternative uses of limited resources.

Analyze the worker's foregone alternative.

Identified as Real Cost (Opportunity Cost).

Opportunity cost represents the next best alternative foregone when a decision is made.

Analyze the description of limited resources versus unlimited wants.

Identified as Scarcity.

Scarcity is the basic economic problem of finite resources relative to infinite wants.

Key Concept

Interrelationship among Scarcity, Choice, Scale of Preference, and Opportunity Cost

Question 10Question →

A tailor with a limited quantity of fabric must decide whether to sew school uniforms or evening gowns. If the tailor chooses to produce school uniforms, what constitutes the real cost of this production decision?

The money spent on purchasing the fabric used for the uniforms

The quantity of evening gowns that could not be sewn as a result

The total sales revenue expected from selling the school uniforms

An outward expansion of the tailor's overall production capacity

Show answer & explanation

Answer: The quantity of evening gowns that could not be sewn as a result

Answer

The quantity of evening gowns that could not be sewn as a result

Real cost (opportunity cost) refers to the alternative commodity or satisfaction sacrificed when limited resources are allocated to a particular line of production. Sacrificing evening gowns to produce uniforms represents the real cost of the choice.

Step-by-Step Solution

Identify the resource constraint and choice

The quantity of fabric is limited, making it impossible to produce both uniforms and gowns to full capacity simultaneously.

Scarcity of resources forces economic agents to make choices.

Apply the definition of real cost

Real cost (opportunity cost) is defined as the real goods or services foregone when a decision is made.

Distinguishing real cost from financial outlay is essential in economic reasoning.

Determine the foregone alternative

Choosing to devote the limited fabric to school uniforms means giving up the evening gowns that could have been produced.

The unproduced evening gowns represent the true sacrifice or real cost of producing uniforms.

Key Concept

Real Cost vs Money Cost

Estimated Time:1m 0s

Question 11Question →

An agro-processing enterprise operating at full capacity can produce either $150\text{ bags}$ of cassava flour or $100\text{ bags}$ of garri per day using its fixed processing equipment. Assuming a constant rate of transformation between the two goods, what is the opportunity cost, in bags of cassava flour, of increasing garri production from $40\text{ bags}$ to $70\text{ bags}$ per day?

Show answer & explanation

Answer: 45

Answer

The opportunity cost of increasing garri production by 30 bags is 45 bags of cassava flour.

The opportunity cost of producing one additional bag of garri is

150 / 100 = 1.5\text{ bags}

of cassava flour. Increasing garri output from

40

70\text{ bags}

requires producing

30

additional bags. Consequently, the total opportunity cost is

30 \times 1.5 = 45\text{ bags}

of cassava flour foregone.

Step-by-Step Solution

Calculate the unit opportunity cost of garri

Opportunity cost of 1 bag of garri = 150 / 100 = 1.5 bags of cassava flour

Given full utilization of fixed resources, producing maximum cassava flour (150) versus maximum garri (100) establishes a constant trade-off ratio of 1.5.

Calculate the increase in garri production

70 - 40 = 30 bags of garri

The question specifies an expansion in garri output from 40 bags to 70 bags.

Calculate total foregone cassava flour

30 × 1.5 = 45 bags of cassava flour

Multiplying the extra garri produced by the unit opportunity cost yields the total foregone alternative.

Key Concept

Opportunity Cost Calculation

Question 12Question →

A consumer has a fixed budget of ₦20,000 and urgently requires both a modern economic textbook and a scientific calculator, each priced at ₦20,000. If the consumer decides to purchase the economic textbook, what is the real cost of this choice?

The sum of ₦20,000 paid for the textbook

The scientific calculator foregone

The satisfaction derived from reading the textbook

The combined financial value of both items

Show answer & explanation

Answer: The scientific calculator foregone

Answer

The scientific calculator foregone

In economics, the real cost (or opportunity cost) of an action is the alternative good or service given up when a choice is made under conditions of scarcity. Since the consumer opted to purchase the textbook, the scientific calculator represents the foregone alternative and thus constitutes the real cost.

Step-by-Step Solution

Identify the fundamental economic problem presented in the scenario

Scarcity of resources (fixed budget of ₦20,000) relative to unlimited wants (textbook and calculator total ₦40,000).

Limited resources force the consumer to make a choice.

Distinguish between money cost and real cost

Money cost is the cash price paid (₦20,000), while real cost (opportunity cost) is the alternative item foregone.

Economics defines real cost in terms of sacrificed alternatives rather than monetary expenditure.

Determine the foregone alternative based on the choice made

Choosing the textbook means sacrificing the scientific calculator.

The scientific calculator is the next best alternative given up.

Key Concept

Real Cost (Opportunity Cost)

Scarcity and Choice

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Common Mistakes

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Common Mistakes

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Common Mistakes

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Common Mistakes

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Common Mistakes

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Common Mistakes

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Common Mistakes

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Common Mistakes

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Common Mistakes

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Common Mistakes

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Common Mistakes

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Common Mistakes