scale of preference in economics

Understanding Scale of Preference

Last Updated on March 3, 2022 by InfomediaNG

When available resources are limited, the scale of preference will come into play. That is the most important thing that will top the list of wants.

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It is assumed that when human beings are faced with making choice, they would choose the one that meets their pressing need.

Man would most likely choose between alternatives that give maximum satisfaction in times of scarce resources.

What is scale preference?

A scale of preference is a list of human wants arranged in order of priority. It is a priority rating of all individual wants according to their importance (New System Economics by Ewa Adu and G.A. Agu, page 3).

Everyone has a form of a scale of preference even in some situations when one has enough cash to purchase books, the latest edition of the iPhone, buying stocks, a car, a new shirt.

Example of Scale of Preference

A student received NGN100,000 as pocket money from his parents. She desires to purchase a pair of shoes, new sets of shirts, wristwatch, subscription, travelling bag, undies, a new iPhone, pay for her the typing and banding of his project.

Of course, there is no way NGN200K would be enough to take care of the above wants. The student draws a list of her wants in order of priority.

Consciously or unconsciously, she arranges them as can be seen in this table:

S/NItemsPrice
1Typing of her projectNGN12,000
2Project bandingNGN17,000
3New sets of wearsNGN35,000
4A pair of shoesNGN8,000
5SubscriptionNGN3,000
6ExigenciesNGN25,000

Because of the insufficient funds at her disposal, she goes for the most pressing one first. She also makes sure she keeps some with her in case of emergencies.

Despite her love for the latest iPhone, she leaves it out of the list because she has an android phone that is still in good condition.

It’s germane to point out that another student who receives the same amount might behave differently.

The point here is that concept of scarcity and limited resources impose prudent spending. It compels a rational buyer to spend their limited resources on items that are most urgent.  

Importance of Scale Of Preference

The concept of the scale of preference is significant in several ways in the study of economics, they are:

Ranking of Needs

It enables buyers to critically think about how important an item is if it can be put on hold for another day. What major problems would getting an item solve over others?

Ranking of needs leads to efficient utilisation of limited resources

Financial Prudence

As earlier pointed out, scale of preference enables individuals to be prudent in spending because of the desire to meet other needs.

In a situation whereby price isn’t fixed in Africa, one is most likely to see a buyer compare the price of the same product in different places before settling for the slightly cheap one.

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Identification of Highest Priority

If you check the table of preference by a student above, typing and binding of her project are on top of the list because successful submission of her project is a prerequisite to graduate and bag a degree.

That’s the essence of drawing a list according to how important they are.

Logical Choice

It isn’t just about choice, but it has to be rational. If a student has an existing phone, why not divert the money to something else that they need most?

It Sparks Managerial Skill

Why are people better manager managers when they have little or limited funds? The concept of the scale of preference spur the same managerial spirit.

Why do we make a scale of preference?

We make a scale of preference to satisfy the most important item among others. It assists families, organisations, government to make rational choices in the list of wants.

A government that fails to pay attention to its scale of preference may resort to reckless borrowing because it spends on things that are less important.

For instance, a country that spends more money to maintain its lawmakers rather than funding education may be described as a disillusioned government.

What’s the difference between a scale of preference and opportunity cost?

They are not the same, but both are important concepts in the study of economics. While opportunity cost evaluates possible outcomes, the scale of preference focuses on order or priority.

The scale of preference is more precise, whereas opportunity cost involves weighing one thing versus the other, importance is not necessarily a factor.

Is Scale of Preference Applicable in Marketing?

Yes, in every aspect of human endeavour. It is a large part of consumer demand. For instance, during the design stage of marketing, you must be in touch with consumer preferences in order to effective and successful marketing.

Is there a consequence for failing to have a scale of preference?

If priority is not properly outlined, it may lead to a crisis. For instance, a student who has just NGN400,000 and opts to buy the latest model of iPhone instead of first paying his school fees may create a crisis for himself.

Recap:

The scale of preference means arranging what you want to buy or possess in order important.

It also means a list of what we want in order of priority.

Everyone irrespective of their status, educated or not, religion or the language they speak has a scale of preference.

  1. Featured Image by pixabay
  2. Staff Writer (May 27, 2020). “What Is Scale of Preference in Economics?”. Reference.com. Retrieved March 3, 2022
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