Consumer sovereignty

Consumer sovereignty is the principle that consumers’ purchasing choices guide what firms produce. It describes how demand influences production in a market economy.

Consumer choice: Consumer choice is the selection of goods and services from available alternatives. Purchases express the preferences that consumer sovereignty treats as signals to firms.
Preferences: Preferences are an ordering of alternatives according to how desirable they are to a person. Consumer sovereignty begins with preferences that purchasing decisions are assumed to express.
Producer sovereignty: Producer sovereignty is the view that producers, rather than consumers, substantially shape what is made and sold. It reverses the direction of influence emphasized by consumer sovereignty.
Purchasing power: Purchasing power is the quantity of goods and services that income or wealth can buy at prevailing prices. Market influence follows effective demand, so wealth affects whose preferences shape production most.
Demand: Demand is the quantity of a good or service that buyers are willing and able to purchase at different prices. Combined consumer choices form the demand firms use when deciding what to supply.
Utility: Utility is a representation of the satisfaction or ranking a person derives from available choices. Economic models use utility to describe the preferences underlying consumer decisions.
Consumer paternalism: Consumer paternalism is the restriction or redirection of consumer choices to protect people from perceived harm. It challenges the idea that consumer choices should determine market outcomes without correction.
Income inequality: Income inequality is the uneven distribution of income among people or households. Unequal incomes make consumer influence unequal even when market choices are formally open.
Price mechanism: The price mechanism coordinates economic decisions through changes in prices shaped by supply and demand. Changing prices communicate shifts in consumers’ willingness to buy.
Budget constraint: A budget constraint describes the combinations of goods a consumer can afford given income and prices. Purchasing power limits which preferences can influence production through actual demand.

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