Question

Bill had plenty of money to buy a new car although he is reluctant to do...

Bill had plenty of money to buy a new car although he is reluctant to do so because he also wants to pay cash for his vacation this year. What element of a market economy prevents Bill from buying a new car in this scenario?

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Answer #1

Answer - Bill had plenty of money to buy a new car. He is also wants to pay cash for his vacation this year. If he would enough money to buy both goods then there will be no problem. Since Bill cannot buy both good simultaneously therefore he must have sacrifice one good. Either he can sacrifice buying car or paying cash for vacation this year.

The element which prevents Bill from buying a new car in this scenario is ''opportunity cost''. The opportunity cost is defined as second best alternative that a consumer can buy. Opportunity cost of buying car is higher than paying cash for vacation this year.

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