The ability and freedom of the consumer to determine the fundamental resource allocation decisions is limited by the following factors:
- Nature of the economic system – In general, the consumer is more sovereign in a free market oriented system where commodities are produced more in line with consumer preferences. In a planned economic system less regard is given for consumer preferences since what is produced is determined by a Central Planning Authority.
- Size of the consumer’s income – The power to determine what is to be produced depends on the amount of income that an individual consumer earns. The consumers who earn more are able to exercise more of this power since they are capable of bidding up prices of the type of goods they want; the demand of the low income earners is relatively less effective in influencing resource allocation. Thus, the larger the consumer’s income the greater is the consumer’s sovereignty since the consumer can afford to choose from a wider range of goods and services which he can buy. Consumer sovereignty is, however, always limited to some extent by the level of income and especially since wants are unlimited.
- Range of goods available – Depending on the technology available and ownership of productive resources, consumers depend on the goods actually available in the market to satisfy their wants.
They cannot therefore reflect their preferences through price bidding of the required products since such products may after all not be available in the market. The level of production may lag behind consumer’s desires and therefore what is produced is not in accordance with the nature of tastes and preferences. Different consumers have very different individual tastes and preferences and it is difficult for the available range of goods and services to satisfy all the consumers.
- Government policy – The consumption of certain goods may be prohibited by the government irrespective of the level of effective demand for them. The government usually prohibits production or sale of certain products in public interest e.g. harmful drugs, pornographic materials/literature. In this case, the consumer has no price bidding process power to influence and determine production and distribution. Government intervention is also looked at in terms of providing merit goods. The fact that the government needs to intervene to provide essential goods and services attests to the fact that the complete reliance on consumer preferences especially in a market oriented economy would lead to the under provision of certain essential goods and services.
Advertising and other persuasive promotion activities and salesmanship – In the words of a Harvard Professor, Prof. J. K. Galbraith, advertising of especially large corporations not only entices consumers to use the products of these corporations but also creates new wants. Real desires of consumers are modified by the highly persuasive nature of advertising and salesmanship – in some cases, such consumers tend to purchase the advertised products according to the advertising claims which may not be directly compatible with the actual buyer benefits particularly in terms of the quality of content. The sovereignty of the consumer is
limited in this context since effective demand is diverted from some goods to others (through
resource reallocation) through the powerful influence of advertising.
- Conventions of Society (perceptions and norms) – Where the general human behavior is dictated by the conventions of society an individual sovereignty is limited. This is common with clothing and religion. E.g. wearing of trousers by women, which is against the Islamic religion – such that women have no effective demand that will influence the production of such items irrespective of their desires.
- Peer pressure/habit/addiction – Individual consumers have different habits and are often reluctant to change. Thus, for example, individual consumers tend to get attached to particular supplies and particular products (brand loyalties) and are reluctant to change. Similarly, addiction to certain products like cigarettes and alcohol whose consumption is recurrent and the consumers become almost completely incapable of departure. Even where change is as a virtue of necessity, it is almost impossible due to this addictive nature of products. Accordingly, a consumer in this state has a limited sovereignty in determining the production of goods other than the addictive goods. Moreover, such consumers cannot perhaps cause a reduction in production of such goods since their demand is always effective.
- Standardisation of goods – Production of standardized goods tends to be relatively cheaper to manufacturers. Therefore, consumers may not influence what is to be produced as the standards (in terms of type, content, design, etc.) are already set by manufacturers.
Existence of monopolies – A monopoly is said to exist where there is a single supplier of a commodity with no close substitute. This monopoly power limits the ability of the consumer to determine the type, quantity, quality and price of a commodity.
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