Consumer sovereignty
Encyclopedia
Consumer sovereignty is a term used in economics
. It refers to consumers determining the production of goods
. The term can prescribe what consumers should be permitted, or describe what consumers are permitted. The term was coined by William Hutt in his 1936 book "Economists and the Public".
In unrestricted markets, those with income
or wealth are able to use their purchasing power
to motivate producers. Customers do not necessarily have to buy and, if dissatisfied, can take their business elsewhere, while the profit-seeking sellers find that they can make the greatest profit
by providing the best possible products for the price (or the lowest possible price for a given product).
To most neoclassical economists
, complete consumer sovereignty is an ideal rather than a reality because of market failure
. Some economists of the Chicago school
and the Austrian school see consumer sovereignty as a reality in a free market
economy without interference from government or other non-market institutions, or anti-market institutions such as monopolies
or cartel
s. That is, alleged market failure
s are seen as the result of non-market forces.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
. It refers to consumers determining the production of goods
Good (economics and accounting)
In economics, a good is something that is intended to satisfy some wants or needs of a consumer and thus has economic utility. It is normally used in the plural form—goods—to denote tangible commodities such as products and materials....
. The term can prescribe what consumers should be permitted, or describe what consumers are permitted. The term was coined by William Hutt in his 1936 book "Economists and the Public".
In unrestricted markets, those with income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
or wealth are able to use their purchasing power
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...
to motivate producers. Customers do not necessarily have to buy and, if dissatisfied, can take their business elsewhere, while the profit-seeking sellers find that they can make the greatest profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
by providing the best possible products for the price (or the lowest possible price for a given product).
To most neoclassical economists
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
, complete consumer sovereignty is an ideal rather than a reality because of market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...
. Some economists of the Chicago school
Chicago school (economics)
The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of The University of Chicago, some of whom have constructed and popularized its principles...
and the Austrian school see consumer sovereignty as a reality in a free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
economy without interference from government or other non-market institutions, or anti-market institutions such as monopolies
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
or cartel
Cartel
A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
s. That is, alleged market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...
s are seen as the result of non-market forces.
Citations
- Campbell R. McConnell and Stanley L. Brue (1999, 14th ed.), Economics. McGraw-Hill, p. 68.
External links
- Consumer Sovereignty: the Key to Mises’s Economics, J. P. Gunning
- Persky, Joseph, “Retrospectives: Consumer Sovereignty,” Journal of Economic Perspectives, 7 (1993), 183-191.