Consumer’s Sovereignty in an Economy

In this article we will discuss about Consumer’s Sovereignty in an Economy. After reading this article you will learn about: 1. Meaning of Consumer’s Sovereignty 2. Limitations of Consumer Sovereignty.

Meaning of Consumer’s Sovereignty:

In a competitive economy, there is consumer’s sovereignty.

This means:

(a) That the consumer knows best what serves his welfare, and

(b) That his preferences determine the allocation of resources and goods in an economy.

The consumer is assumed to choose commodities according to his preferences; and preferences assume significance in the context of his choice. In a capitalist economy, the consumer has freedom of choice. That is why he is regarded as a sovereign, king or queen. This is what is meant by consumer’s sovereignty.

The consumer is free to buy any commodity and in whatever quantities his likes. His preferences determine which goods are purchased. Every producer tries to produce a variety of goods to meet the tastes and preferences of the consumer.

This also implies freedom of production whereby a producer is at liberty to produce different types of goods to satisfy the consumer who behaves like a king or queen in making a choice out of those goods with his given money income.

The consumer reveals his tastes and preferences to producers through the price mechanism. A capitalist economy is characterised by multiplicity of wants and scarcity of resources. As a result, all wants cannot be fulfilled. The consumer has, therefore, to choose and pick from the vast variety of goods offered to him by producers.

The urgency of desire for certain goods means that the consumer is prepared to pay a large sum of money and higher prices. It means larger profits for producers of those commodities. I f the consumer desires goods less urgently, it shows his reluctance to spend more money on them and he offers lower prices. Expecting shrinkage in profits, producers also bring smaller quantities of their goods to the market.

If producers increase the supply of a commodity without any regard to the wishes of the consumer, it will have a low value in his estimation and the lower will be its price. A small supply on the other hand, increases the prestige of the commodity in the mind of the consumer and he pays a higher price for it.

Thus the different prices which the consumer pays for various commodities represent their comparative values to him. Prices also change with the consumer’s tastes and preferences. The consumer registers his preferences for commodities by paying more for them and his distaste by offering less.

Thus a consumer’s tastes and preferences are also reflected in the prices of goods and services. Consumer’s choice also guides the operations of industries. A person who wants to start an industry will be motivated by the consumer’s choice for that particular commodity.

He will choose that commodity which is likely to’ have a large demand and a high price in the future. That will ultimately depend upon the choice and preferences of the consumer for that commodity, as reflected in the price mechanism.

Thus the consumer is the sovereign. He sets the price and producers manufacture those commodities which he wants more. The more the producers produce, the larger the profits they earn. The fate of the producer is sealed if the consumer has no liking for his product and he sets a low price and incurs loss.

Therefore, the producer at once reacts when the consumer acts and resource allocation takes place along with the production of goods. Thus it is in this sense that Prof. Benham called the consumer as the king or sovereign.

Limitations of Consumer’s Sovereignty:

But consumer’s sovereignty is a myth because the consumer’s freedom of choice is limited by the following factors:

1. Unequal Income Distribution:

Consumer’s sovereignty is limited by unequal income distribution in a capitalist society. The consumer who is poor has a limited choice of products. His wants remain unsatisfied. It is only the rich consumer who can choose from a variety of products. Thus consumer’s sovereignty has little meaning in a system with unequal distribution.

2. Availability of Goods:

Consumer’s choice is limited only to those commodities which are manufactured and supplied by producers in the market. The availability of goods, in turn, depends on the availability of natural resources and the level of technology in the country. For instance, a consumer in a village may wish to have a telephone which is not possible in a country like India.

3. Combined Choice:

As a matter of fact, it is not the choice of an individual consumer that governs the production of goods but the combined choice of consumers that operates the price mechanism. In this age of automation, no producer produces a product to meet the demand of an individual consumer. Rather, he produces a commodity keeping in view the majority of consumers. Thus consumer’s sovereignty is not a reality.

4. Consumer not Rational:

The consumer is not a rational buyer. He is often ignorant about the utility and quality of the products available at the stores or shops and thus cannot make a right choice.

As pointed out by Prof. Benham, For example, consumers get less nutritional value than they should out of their expenditure on food because they may buy the wrong kinds of food; or they spend too little on food in order to buy a drink or nylon stockings or to go to cinema.

5. Society’s Customs:

Consumer’s sovereignty is limited by the prevalent customs of the society in which he lives. He has to follow certain conventions and customs of his society which limit his freedom of choice.

6. Fashions:

The consumer’s sovereignty is also adversely affected by the fashions in vogue. He/she may want to wear a particular dress. But he cannot exercise his choice for that if it is out of fashion. He would not like to be ridiculed by his friends and relatives by wearing the dress of his choice.

7. Standardised Goods:

There is no place for consumer’s sovereignty in a capitalist economy where standardised goods are produced in bulk. The consumer has no choice of his own except to buy them in whatever shape, quantity quality, etc., they are manufactured and sold.

8. Advertisement and Propaganda:

Advertisement and propaganda in the form of salesmanship, free sampling, tree service, door-to-door canvassing, newspaper ads, commercial broadcasts, TV visuals, etc. undermine the consumer s sovereignty. The consumer is influenced by them and is unable to make choices of goods according to his preferences.

9. Monopoly:

The existence of monopoly combines and cartels stand in the way of consumer’s sovereignty. The consumer has to buy the goods produced by the monopolist at the prices fixed by him. There is no other choice for the consumer except to buy the monopolist’s goods, it he wants to consume them.

10. Government Restrictions:

The government also controls and regulates the consumption of certain commodities which restrict the consumer’s sovereignty. The consumption of intoxicants likes wine, opium, etc. and harmful drugs is regulated and even prohibited by the government.

Further, the control, regulation and public distribution of essential commodities like kerosene, rice, sugar, etc. are also big hurdles in consumer’s sovereignty. Such restrictions limit the consumer’s choice of commodities.

11. Taxation:

The imposition of income tax and commodity taxes adversely affects the consumer s sovereignty. Both tend to reduce the disposable income of the consumer with the result that his choice of goods is limited.