What is the scale of preference in economics? Definition, why is it important?

One of the most commonly mentioned phrases in economics is the scale of preference. By nature, human beings have insatiable wants and have to arrange them in order of preference. The concept helps entrepreneurs and businesspeople to prioritise their clients' needs.

Every individual makes choices that result in the optimal level of benefit or utility for them. People need to be rational when making choices and decisions. The scale of preference in economics helps people to take care of their most pressing wants first.

All about the scale of preference in economics

Every human being has unique preferences based on their financial muscle, education level, and social status, among other factors. Generally, basic needs get prioritised over luxuries. A list of one's needs and wants in order of priority brings about the concept of scale of preference.

What is the scale of preference in economics?

The concept of the scale of preference in economics means the importance an individual places on particular needs and wants. Sane human beings normally prioritise basic needs over secondary or luxury ones.

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An example of this concept is a consumer with ₦2 million, and they want a brand-new car and a home. The consumer must decide which of the two is more important.

The average Nigerian consumer will use a large chunk of the money to build a home because shelter is a basic need. The balance, if any, is not enough to purchase a car. Therefore, they will forego the car.

How do economics and the scale of preference relate?

The scale of preference is a vital only tool in economics because it helps economists and other key stakeholders to determine the real demand for goods and services. The concept creates a bond between consumers and suppliers for mutual satisfaction.

It also benefits sellers and buyers to prioritise what to sell and consume. It is a good reminder that resources of scarce and basic needs should be met before luxuries.

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Why is the scale of preference important?

The importance of the scale of preference in economics is observed by consumers and sellers, as explored below.

Importance and benefits to consumers

Consumers who have a good understanding of the concept of the scale of preference benefit in the ways listed below.

• It helps them to stay within their financial abilities and limitations.
• It teaches individuals to prioritise what is essential, thus improving their satisfaction levels.
• It promotes better resource utilisation because everyone knows the sellers are doing their best to produce enough for the market using limited resources.

Importance and benefits to sellers

The importance and benefits of the concept to sellers are listed below.

• The knowledge helps the businesspeople to use the available resources efficiently.
• It helps sellers to produce enough items for the customers, meaning no excess will go to waste or deficit that will not meet the demand.
• It helps sellers make optimal profits from the market because they produce enough items to meet the demand with minimal losses.

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Scale of preference table

A scale of preference table is a written list of things you need and want in order of priority. Some people create mental lists. However, a drawn table will give you a clearer picture of what you should spend on first.

An example is the case of Nkechi, a fresh graduate who has just landed her first job and moved into a new rented apartment. She has ₦720k on her, and below is her table.

Based on the table above, going out with friends is the last item on her priority list. Nkechi cannot go partying before she meets her rent.

Opportunity cost

Opportunity cost is a concept closely related to the scale of preference. In economics, it means the value an individual stands to benefit from choosing one decision over the other. The concept is crucial in decision-making.

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To properly evaluate opportunity cost, the costs and benefits of every option available must be considered and weighed against all others.

In opportunity cost, an individual can get what they love even if it is not an essential need. Unlike opportunity cost, the scale of preference allows you to get the essential items before meeting secondary needs.

What is the meaning of scale of preference?

Scale of preference refers to a list of unsatisfied wants arranged in order of their relative importance. This helps in decision-making.

What is the difference between scarcity and the scale of preference?

Scarcity refers to the central or basic economic problems an individual is facing. On the other hand, the scale of preference refers to a list of unsatisfied wants arranged in order of their relative importance.

What is the difference between the scale of preference and opportunity cost?

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A scale of preference is a list of wants arranged in order of priority or importance. On the other hand, opportunity cost is the alternative want foregone as a specific want is satisfied.

The scale of preference in economics is an important tool in decision-making. This is because it helps consumers and sellers to prioritise things.

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