Chapter 4, Problem 14AA

To determine

Uses of credit

Explanation of Solution

People have limited income. They cannot buy everything they want at present. In that case, they use credit and make purchases in the current time period. Credit is generally used to buy costly items such as automobiles, electronic equipment, and many home appliances. People think that they need these items now and use credit. Those who thinks that they do not need these things urgently, they save money and buy such items in future and avoid using credit.

For instance, a person wants to buy a car to go to office. He thinks that it will reduce his travelling time and cost. But he has only half the amount required to buy a car. Now he uses credit and borrow the remaining amount and buy the car. It helps him to enjoy his current consumption. And he will repay the amount in future.

Economics Concept Introduction

Introduction:

Credit: when people get funds either directly or indirectly to buy goods and services in the present and promise to pay the fund in the future it is known as credit. In other words, when people do not have sufficient funds to make current purchases they borrow some money and agrees to repay the lender in future.