Scale of preference is an important concept of economics. Find out what it is and why you should learn about it.
Economics is a part of modern life. In our world, it is almost impossible to live without basic knowledge of it. It can help not only in building you career, but also in everyday life. We face its issues daily. Thus, one of the important things is scale of preference in economics. However, let’s first discover the general meaning of economics.
There are many definitions, but in general, it might be described as the study of those factors, which have an impact on income, wealth, and well-being. Besides, you need to know, it is a complex social science, which includes math, statistics, several physical sciences, and such disciplines as law, politics, and so on.
Basic concepts of economics
The key thing is that scale of preference in economics is one of the concepts of it. Let’s look at all the existent ones, before we start discuss this one in details. They are:
- Scarcity. It might be described as limited supply of resources, which are used to satisfy unlimited wants. We can also say it is inability of people to provide themselves with all the necessary and desirable things. The resources are considered scarce relative to the level of demand. Wants are endless and insatiable relative to resources; that’s why people have to prioritize. Otherwise, there won’t be any economic problems.
- Wants. It is quite obvious. They are needs and desires of people to own goods and services that give them particular satisfaction. There are various groups of needs. Some of them are basic ones, such as food, accommodation, and clothing, while the others are additional. The latest may include different products, such as cars, furniture, electronic, etc. There are also those in the form of services, which contain medical assistance, tailoring, and some other things. The means of satisfying such needs are usually scarce.
- Scale of Preference. We have finally come to our issue. As the resources are limited, people have to make choices. Thus, this concept is a list of unsatisfied wants, which are organized in the order of their importance for a particular person. We can just say they are arranged by priority. The most pressing want usually comes first, while the least pressing one come the last. The choice appears, because desires might be various and they are numerous. The resources in their turn are scarce.
- Choices. They are systems of selecting one thing out of several alternatives. People have to choose to satisfy their needs. The most essential things are preferred. Their sales are usually much higher. Besides, the manufacturing is more intense.
- Opportunity cost. It is expression of cost in terms of forgone alternatives. Thus, it is satisfaction of somebody’s wants at the expense of other wants. This concept is connected with the desires, which have been left unsatisfied in order to fulfill more pressing demands. It is vital to remember that it is not the same as money cost. The latest refers to total amount of money, which is spent to acquire certain goods or services.
These are the most essential points of economics. People, who are involved in any business, always take them into account. The key thing is to remember that demand and supplies are not equal.
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Importance of scale of preference in economics
Along with the other concepts, it is vital to know about the importance of scale of preference. There are several factors, which make this issue essential. They are as follows:
- It allows effective and efficient application of rare or limited resources. With the help of it, everyone can compare his or her needs and opportunities and decide, what is more or less important.
- With the help of such scale, all the priorities (either individuals or firms) are properly organized and set.
- This issue also helps plain people to get maximum satisfaction from the limited resources. They understand, which ones are more pressing, and choose them taking all the benefits. At the same time, they sacrifice less urgent ones.
- Scale of preferences allows people to make the right decision, when it concerns the allocation of limited resources.
- It gives an opportunity to make business more profitable, because sellers and manufacturers can better understand the buyers’ needs.
There exist much more things, which make the observed issue important in everyday life. It is better to know at least some of them and understand the term.
Example of scale of preference in economics
We have already described the term. Now we can look at some real life examples and find out how it works. Consider the following situations:
A farmer has 2000 naira and wants to buy some food for the family and a new hat. The amount of food he requires costs 1500naira while a new hat costs 700naira. Thus, you can see that he has no opportunity to buy both things, just because his total sum of money is not enough. However, he is able to but one thing out of two. Here a choice arises. A man should decide which one of his demands is more urgent and pressing. The answer is probably obvious. He can live without a new hat, and his family cannot live without food. Here, food is a basic need, while new hat is an additional one. He chooses to spend money on food and sacrifices his new hat.
In fact, in this example, we can observe all the system of economics. It contains every concept listed above, starting from the wants (food and new hat) and ending with the opportunity cost (a farmer sacrifices his new hat to satisfy more essential demands).
With the help of such simple example, you can understand the most essential and difficult economic processes.
Economics is a very complex science. We face its concepts and processes every day in our life. It is equally important to understand its issues both in everyday and business deals, as they allow to get more profit.
With the help of good examples anyone can understand, what the scale of preference is. Moreover, taking into account its impotence, you can take more benefits from the limited resources and make more appropriate choices.