Scale of Preferences
All desires or a consumer arc not of equal urgency or importance. Since his resources arc limited and he cannot fulfil all his desire, he must pick and choose more important and more u •.gent desires for satisfaction. Thus, some desires lake precedence of others. This is how a can umcr ranks his desires and builds up a scale o! preferences. Scarcity forces him to choo: c. Ability to arrange preferences in order
of importance or urgency is inherent in human nature.
A prudent consumer exercises a lot of discrimination in his purchases. We find him substituting one commodity, partly or wholly, for another, He purchases a certain quantity of a and no more. All the time, he is striving to reach an equilibrium position, i.c., a position in which he derives t his disposal But what is the criterion (III which a consumer his choice’! It is the relative evaluation of the utilities of the conditions indulge in his. Since utility is subjective, the evaluation is obviously hy himself. This means that a can super has in his mind a definite scale of preferences which guides him ill ls purchases. For underplay. Studentships would like till spend their monthly caterwaul on the purchase of useful books, while others will squander it in the can teen, It is the cons: I’~ scale reference cs which would plunderer his purchase plan, This scale of preferences is shaped by consumer’s temperament and tastes. Thus, the priorities ill a consumers purchase plan arc determined by his scale of preferences. As we have mentioned already, a prudent consumer seeks to animistic his satisfaction from the purchases he makes, i.e., reach an equilibrium position, But in order 10 be able to do so, a consumer must build up a scale of preferences 011 which all objects of desire or pursuit find their place, and which registers the terms 011 which they would be accepted as equivalent, ‘ or preferred one to the other.
The consumer’s scale of preference is independent of the prices rulings in the market. He build” up his scale of preferences from the commodities he mesons. On the basis of this scale of preference cs, he knows that one combination of the goods yields him the same satisfaction as another. In the discussion of consumer preference, \ e have to make certain assumptions to enable us to leach valid conclusions. The main assumptions ale: (i) Comply.We assume that the consumer’s scale of preferences is , 0 complete that he is able to choose anyone of the two combinations of commodities presented to him or is indifferent between them. (ii) Non-satiation.A consumer prefers more to less. (iii) Consistency or Transitivity. If a consumer regards Q better that Rand R better than S, obviously ‘he will prefer Qto S. i’ this choice is open. Consumers'< .choices have to be consistent.R.G.D. Allen (iv) Continuity or iubstitutnhititv, Unless ‘JIle combination can be substituted for another ‘I’e consumers’ preference will not be possible .The indifference curve is COI” vex to the origin and show the diminishitu; r;’ftr; of marginal rate of substitution to be cvplaincd presently. It is not to be supposed, however, th;1t actually” consumer has a complete or consistent <calc 1’1′ prefercuccs in his mind or that he i~fllily conscious of it all the time. Certain commodities usuallv figure ill lilt: weekly ur monthly purchase- and arc thus purchased by habit. A conscious choice i•. made in the case (,f new purchases. But consumers, ale mill 1110b1e1ings. We can construct a theory of demand because scales of preferences arc in some degree rational and stable through time, and purchases arc usually made according 10 them. Actually, there is sufficient degree of stability in the spending pattern of consumers so that a realistic theory of demand can be propounded. Actual purchases made by a consumer may not, however, be in conformity with his scale of preferences. They rather depend on the amount of money in his pocket and the commodities available at the time as well a~ on their relative prices. Consumer’s purchasing power docs not depend merely on the amount of money he has. The real purchasing power depends also on the current price level. If he finds that the market has gone down, he will be able to purchase more, and vice versa. Given the scale of preferences, a consumer will arrange his purchases in the light of realised purchasing power of his resources.