Question

. Chapter 2 told us about "Consumer Sovereignty." They said this is how we can determine what will be produced. How does this concept work?

Answer 1

Consumer sovereignty is an important concept for classical economics. Basically it is the hypothesis that production of goods and services totally depends on consumer preferences. The concept assumes that Consumers have the ultimate power to decide what should be produced and how scarce resources should be allocated, also They can choose between different firms and suppliers. If a firm produces something that no consumers want, then there will be no use of that firm and the firm will not remain in business for very long. If a firm can get to know what influences consumer demand and produce what consumers want, then only they can remain in business. Thus consumers sovereignty ensures effective functioning of free market and influence what to produce in the market.