Consumer`s soverginity by ravi

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Consumer sovereignty

PREPARED BY

RAVI SHREYPh.D. Scholar,

Agricultural Economics,

DEPARTMENT OF AGRICULTURAL ECONOMICSC.O.A., I.G.K.V., RAIPUR (C.G.)

INTRODUCTION

Producer sovereignty is the condition when firms have the power and ability

to influence consumer decisions. For example, in a monopoly consumers

have no choice and have to pay the price and buy the goods offered by firms.

In other word Producer sovereignty means that it is firms who will decide

what to do. For example, some argue persuasive advertising techniques

mean consumers will buy what firms wish to sell.

In reality, there is a mixture of both consumer and producer sovereignty.

But, if markets are more competitive, consumer sovereignty plays a more

important role.

Consumer sovereignty–

The ability and freedom of consumers to choose from a range of different goods and services is called consumer sovereignty. It means that ultimately it is consumers who will decide what is produced and how scarce resources are allocated.

Consumer sovereignty is an important concept for classical economics. This assumes that consumers have the freedom and ability to choose between different suppliers and firms. In theory, consumers will use their discretion to choose the cheapest and / or best quality goods. In theory this consumer sovereignty ensures the effective functioning of free markets. It rewards efficient firms and encourages firms to provide goods consumers want.

Important Contributions

• The term was coined by William Harold Hutt in his book Economists and the Public (1936).

• Thus consumer sovereignty forms an important aspect of free market economics, it is a function developed by the economist Ludwig Van Mises.

• Prof. Benham called the consumer as the King or sovereign.

History-

“Consumer sovereignty” is one of those concepts that flourish and

are widely influential long before they are explicitly recognized and

named. (Their belated recognition is often concomitant with their

decline.) Much of the substance of consumer sovereignty is implied

in Adam Smith. The focus of subsequent classical economics on

cost of production as the basic determinant of market decisions

temporarily sidetracked this emphasis. It returned more strongly

with the Austrian school of Wieser and Menger, and in the work of

Jevons, Pareto, Marshall, Pigou, and Wicksell.

HISTORY

Consumer sovereignty has been used in both a descriptive and a normative form. In the first form, the term simply means that all economic processes are ultimately focused toward satisfying the wants of the final consumer. Production, exchange, and distribution are all means; consumption is the end. Moreover, in a free market system, market performance is in fact responsive to the specific wants of the consumers within the system.

The question of how responsive leads to the normative form. As a normative principle, consumer sovereignty asserts that the performance of any economy ought to be evaluated in terms of how well it fulfills the wants of its consumers. Performance will be affected by the structural characteristics of the economy, by public policy, by behavior of participants that is not uniquely determined by structure and public policy, and by certain external circumstances.

HISTORY

Association of Consumer sovereignty with a free market economy

Consumer sovereignty has been frequently associated closely but misleadingly with a free market economy. Since it can help to isolate the boundaries of the principle, we shall examine the alleged association. It comprises the following four steps:

(1) Knowledge of consumer wants. No one knows what a consumer wants as well as he does himself. Consequently, his wants will be best reflected in his market demand for commodities.

(2) Expression of wants. Consumer demand is best expressed in terms of actual choices made by consumers in the market—in terms of market transactions—since, being rational, consumers will adequately inform themselves of how best to realize their wants in the presence of given opportunities.

Association of Consumer sovereignty with a free market economy

(3) Responsiveness of production to wants. Free enterprise,

directed by the profit motive and intense competition in all

markets, brings about the best possible adaptation of resources

to meet consumer market demands, given the available

resources and state of technology. “Best” is defined as a set of

outcomes such that, whichever one of these obtains, no feasible

alteration can bring about an alternative outcome in which any

individual is made better off without at least one individual

being made worse off.

Association of Consumer sovereignty with a free market economy

(4) Laissez-faire. So long as the conditions for a free competitive market

system obtain, a laissez-faire public policy will lead to a maximum degree of

consumer sovereignty.The emphases in this version are on individualism, on

free competitive markets, and on laissez faire. “Wants” are the wants of

individual consumers; individual consumers know their own wants; they are

self-motivated to become informed about the real alternatives available to

them; and competition both protects them against exploitation and

guarantees appropriate responsiveness in the use of resources to meet their

expressed wants. Thus, governmental interference is at best superfluous

and, more likely, destructive of consumer sovereignty. Finally, the very

criterion by which the appropriateness of market response is evaluated is

one that refuses to sacrifice any one consumer's well-being to that of others.

Limitations of consumer sovereignty

Consumer`s sovereignty is a myth because the consumers freedom of choice is limited by the following factors.1. Unequal income distribution 2. Availability of goods3. Combine choice4. Consumer not rational5. Society`s customs

Limitations of consumer sovereignty

6. Fashions

7. Standardized goods

8. Advertisement and propaganda

9. Monopoly

10. Government restrictions

11. Taxation

We may conclude that consumer`s sovereignty in

modern times is a myth and not a reality. The

consumer is not a king or queen but a slave in the

hands of producers, the state and of his habits,

customs and environment. He does not posses

any freedom of choice.

Conclusion

Refferences

(1) www.wikipedia.org

(2) M. L. Jhingan, Micro economic theory, Vrinda publications

(P) Ltd (7 Edition).

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