Question

Alvin wins a cash prize of $1,000 in a sporting event. Although he wanted to buy a car that costs $3,000, he decides to use the cash to buy a scooter that costs $900. Identify the foundational concept of economics that influenced Alvin’s purchase decision.

a.) Inflation

b.) Scarcity

c.) Supply

d.) Demand

Answer 1

Alvin's purchase decision was influenced by the economic concept of scarcity, where he had to choose how to spend his limited resource of $1,000 and opted to buy a scooter within his budget, rather than a more expensive car.

Step-by-step explanation:

The foundational concept of economics that influenced Alvin’s purchase decision is scarcity. Scarcity refers to the limited nature of society's resources. In Alvin’s case, he has a limited amount of money ($1,000) to spend on either a car or a scooter. The car that Alvin desires costs $3,000, which is more than he can afford with his prize money. Therefore, scarcity forces Alvin to make a choice based on his limited resources. He opts to purchase a scooter for $900, which is within his budget, instead of the car.

Like Alvin, consumers often face budget constraints and must make decisions about how to allocate their limited income. For example, consider Alphonso, who has $10 to spend on bus tickets and burgers. If Alphonso buys one additional burger, the opportunity cost is the four bus tickets he has to give up, since each ticket costs 50 cents. This concept highlights the trade-offs and opportunity costs individuals face when making decisions with a limited budget.