Economics has become an important part of contemporary life long ago. Presently, it is nearly impossible to live without basic knowledge of this science. Therefore, the importance of scale of preference in economics cannot be overestimated. This experience will help everyone in daily life. Let us find out this concept in details.
What is the scale of preference in economics? The definitions of scale of preference in economics are numerous. In a simple language, this concept can be defined as the study of all factors, which directly influence wealth, income, and comfort. Moreover, every educated person should be aware of the fact that complex social science. It also includes statistics, math, many physical sciences, as well as politics and law.
A brief history of this concept
The co-recipient of the first Nobel Prize in Economics and the prominent Norwegian economist Ragnar Frisch primarily developed the concept of the scale of preference in economics. In 1926, for the first time the scientists developed a simple mathematical model of preferences in the context of economic demand and value functions.
In 1944, the scientists Von Neumann and Morgenstern published a book titled “Games and Economic Behavior”. They treated preferences as a formal relation, which properties can be stated axiomatically. They determined the basic concept of a preference scale. It is the only tool in economics that can determine the real demand for certain goods. The scale of preference rotates around the simple people`s needs for a specified product.
According to the theory, buyers continually look for either goods or services to fulfil their needs. They must need these products. For instance, a mobile phone is a highly demanded product. Nearly everyone in Nigeria has a cell phone. Therefore, this product will be the highest demand, thus, influencing a scale of preferences.
The scale of preference in economics
People always must make choices because resources on our planet are narrow. Consequently, the concept of the scale of preference in economics can be only described as a list of unfulfilled want. They are usually organized in the order of their significance for a particular person. In other words, all unsatisfied needs are arranged by their importance. The most demanding need is always in the first place, and the least important one is the last. People have many desires, while resources are limited.
- The scale of preference is a very important concept for economics. An educated person should know at least some of its underlying mechanisms to understand all processes in modern economics better. More than a few features make this subject crucial. Let us have a closer look at them.
- The scale of preference allows using well-organized and actual application of limited resources. It is aimed to help everyone to compare own needs and opportunities. Thus, everyone can determine what is more important now.
- Understanding the basic mechanisms of the scale of preference in economics will definitely help everyone to receive supreme satisfaction from the partial resources. When you actually realize what is more important for you at the moment, you will quickly take all advantages of it, while sacrificing less important needs.
- The scale of preference allows every person organizing all his or her priorities appropriately.
- When it concerns the distribution of narrow resources, the scale of preferences always permits people making the only right decision.
- The scale of preference also allows making business much more moneymaking. It happens because both vendors and producers get a perfect opportunity to understand the purchasers’ needs much better.
An example of scale of preference in economics of Nigeria
Now you understand what scale of preference in economics is. It is high time for us to show a couple of examples from real life so that you understand how this mechanism actually works. Let us look closer at the situation described below.
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A man has 3000 naira. He desires to purchase some food for his family and a new bag. Food costs 2400 naira. His bag will cost him 800 naira. Consequently, you understand that the man has not any chance to buy both things he needs. It happens owing to the fact that he simply lacks money to buy both things. However, he has a choice what to buy. What is the top priority for him at the moment? Of course, the answer is understandable. The man is able to live without a new bag, but his family will not survive without food. The latter is a fundamental need, while the new bag is less important one. Therefore, the man loses his bag and buys food. It is how the scale of preference in economics works.
This example will also show you all the key concepts of economics, beginning from the desires (food and new bag) and finishing with the chance cost (food instead of a bag). Therefore, this simple example will help you to understand the work of the most important and fundamental economic processes.
Everyone knows that economics is a complicated science. Every minute of our life we deal with its basic concepts. If you realize the main principles of economics, you will be able to apply this valuable knowledge into practice knowledge. It will allow you making much money. Knowing well what scale of preference in economics is, you can easily make reasonable decisions taking into the consideration of the issue of limited resources. Just decide what is more important for you now and make a choice!