Chapter 3, Problem 21AA

To determine

The steps to be taken as a rational consumer, to help decide which product to buy considering the opportunity cost along with the reason.

Answer to Problem 21AA

Problem: MP3 Player or used Computer?
STEP 1: Consideration of the budget.	Information: Person J has the budget of $200 to buy any one of the commodities.
STEP 2: The opportunity cost involved.	Information: Buying the MP3 player would cost her homework which is her career, on the other hand, choosing a used computer over the MP3 would make her sacrifice her entertainment.
STEP 3: Rationality of the consumer.	Information: Being a rational consumer, Person J should purchase the commodity which provides her more utility and her damage with the opportunity cost which she is to suffer.
DECISION: Being a rational consumer, and considering the opportunity cost, Person J will decide to purchase the used computer instead of MP3 player.

Explanation of Solution

Considering the case of Person J, she has the option of buying either the MP3 player for her entertainment or the used computer for her own help to do her homework. Being a rational consumer, Person J will try to know the satisfaction she will be getting after purchasing either of the commodities.

Apart from the $200 Person J is going to spend, she will make a rational choice considering  the need of the computer for her homework is more valuable than the MP3 player for entertainment. Spending money on MP3 players would make her sacrifice her homework which is something a rational consumer won’t do as career is the major aspect of life.

Economics Concept Introduction

Introduction:

Opportunity cost: This term can be easily explained as “The next best alternative” which explains that when a consumer has options to buy from two commodities available, he/she will go for the commodity which provides more satisfaction or has more value to the person, sacrificing the other commodity. That sacrifice he/she makes is the opportunity cost.