Question

2. Explain the concept of consumer sovereignty and how in a market economy consumers direct the allocation of resources – determine what is produced with our land, labor, and capital.

Answer 1

Consumer sovereignty means that in a market, the production of goods and services are determined by the consumers. The market is greatly influenced by the demand of the consumers. So the consumers determine what goods are produced and how they are produced. This concept is known as consumers sovereignty. The producers' decision about land, labour, capital, technology are influenced by the consumers as they producers produces goods as a response to demand by the consumers. The producers also need to take care of the quality of the goods and services they produce so as to meet the requirements of the consumers. It is consumers satisfaction that can help the producers last and grow in the market.