Knowledge of economics is so vast and basic that it is almost impossible to live without it. We each encounter economics on a daily basis in issues we tackle. Economics mainly revolves around the ultimate satisfaction of consumer needs. Scale of preference now comes in to help prioritize the needs and wants of an individual. You might be wondering what scale of preference is, let us find out.
Scale of preference is simply a concept that drives to satisfy the wants of an individual in the order of their priority and importance. Let us take a quick example. A man has some 10000$. He has a child,who needs fees of around 7000$. He also wants to buy a TV set of 5000$. Since fees are the upmost priority in any parent, it takes first position in his list of wants. Now that is the scale of preference at work. It is also of value to note that the scale determines the demand of goods in the market. Some commodities will always be of priority due to their recurrent nature than others e.g. food(the most basic). How does economics and the scale of preference relate?
Scale of preference in economics
Here,the scale of preference is more of a tool than a mere concept. It is the only tool in economics that aids in determining the real demand of goods. Due to scarcity of resources and the never-ending demand of goods, scale of preference in economics benefits both supplier and consumer.
To suppliers,the scale helps determine the goods with most demand for efficient production and supply. For consumers,the scale helps them make the right decisions within their at the time of fulfilling the wants.The preference scale deals in efficient distribution of the narrow supply of goods.
The scale of preference has its importance that cannot be overlooked.The main five importance of scales of preference affecting consumers are;
- It enables maximum satisfaction of consumer needs with the little available resources .The limited resource here is when one lacks funds sufficient to satisfy all needs.
- Promotes the perfect utilisation of the available little resources.
- Priorities of individuals are more often set and in line with the amount of resource available. This also applies to firms with specific goals.
- It enables the individuals make the right decisions during the acquisition of the priority wants.
- Enables firms to produce the correct goods for utmost utilisation by the consumers.
The importance of scales of preference therefore in a wrap to economics is that it creates the bond between consumer and supplier that enables mutual satisfaction of needs.
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Another key idea in economics is ‘opportunity cost’. This explains the value(more often disregarding the benefit) of the alternative not chosen. It takes to point the cost of choosing one opportunity to the second,and the cost lost(that the second would have provided e.g.an actress cannot be in the theatre and model at the same time. Here the value of modelling has been foregone for the acting. This is opportunity cost. It draws some useful significances like efficient allocation of resources, though it also has setbacks. The problems include:
- It is confined to specificity. Specific services cannot be put to alternative uses. According to one Mr. Robinson, the rent is zero.
- It is affected by inertia.Alternatives that not easily moved cause subsequent payments that exceed the transfer costs.
- It assumes the idea of perfect competition that is more of a business myth.
- Let us now try to demystify the two complex ideas.
Distinguishing between scale of preference and opportunity cost.
We now know the definition of both ideas. But how do we differentiate them?The trick is in how both ideas work.Though they can both be used to drive businesses to success,one involves sacrifice and the other,a long term investment. Both ideas though support sacrifice they are manipulated to give different results. Scale of preference often sets the platform for dealing with important wants first. Opportunity cost on the other hand,deals with investment on what one loves and wants,importance not so much considered.
Putting aside their differences, one can use the scale of preference and opportunity cost to benefit.Their utilization comes from the fact that human needs are recurrent hence the need for prioritizing and scaling in terms of importance. Any business with needs just like humans then needs to apply these ideas for growth.
Now that it is obvious that these ideas work for humans why don’t we apply them? We need not to wait for 6-figure salaries to start this; neither do we need financial disasters arising from lack of priorities.Take this into consideration and see just how it works out.
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Source: Yen Ghana