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What is consumer sovereignty?

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Quick Answer

Consumer sovereignty is the economic theory that consumers can best determine what goods and services should be produced in a society. Firms, such as businesses and companies, produce whatever the consumer prefers. Economist William Harold Hutt coined this term in his 1936 book "Economists and the Public."

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Full Answer

The theory also says that since consumer markets depend on demand, firms must keep track of what consumers want in order to stay in business. The theory itself has been debated among economists. Some say the ultimate and last purpose of economic activity is consumption, and production and distribution exist to fill the consumers' needs. If there is no consumer demand, products will not be purchased or produced. However, goods are not only sold for consumption, but they also benefit the worker by providing a salary and contributing to society.

Those against the theory have also argued that manufactured demand, caused by firms artificially making consumers desire products through advertising and marketing, is a weakness of consumer sovereignty. In free markets, consumers have a higher level of sovereignty as price is controlled by supply and demand. In a command economy, the ruling state decides what to charge for items, so one could argue there is no consumer sovereignty in this kind of economy.

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