Pricing and the Consumer
PRODUCTION RESULTS from man acting on nature and its endowments. A part of human effort is wasteful especially when directed to the proliferation of the means of destruction prompted by a desire for aggrandizement. From a broad human point of view such an effort is unproductive and destructive though the manpower engaged in such activity may acquire purchasing power for a variety of consumer goods. However, a major segment of human activity in all economic systems is directed towards the satisfaction of people's needs and the creation of the means of production of final consumer goods. In the productive sector therefore, all the activities are directly or indirectly geared to meet consumer needs. In every economic system there may be some who produce primarily for their own consumption. But in all modernized economies those who produce may not even consume a small fraction of what they produce; and, every consumer may not need all that is produced.
Generally, consumers and producers are linked together through a network of means of exchange and distribution. In the capitalist economies, it is the market which knits the consumers with the producers far removed from one another. It is this fact of consumer orientation of productive activity that has led to the belief that consumer reigns supreme. The belief is so widespread that even the high pressure salesmen maintain that 'consumer is right'.
The concept of consumer sovereignty maintains that the mainspring of all economic activity is the decision of the individual consumer as to what he or she should buy, how much, when and where. What each individual decides to buy, of course, depends on the income and the pattern of its disposal. If one is affluent, part of the income may be saved. The rest of it goes for outlay on consumption. The consumption basket largely comprises of luxuries and comforts.Almost the entire income of the poor consumer is spent on the basic necessities of life. It is believed that the preferences and priorities of individual consumers are finally reflected in the aggregate pattern of demand for groups of commodities.
The strength and sensitivity of demand for different commodities are reflected in their relative prices. Under given cost conditions, changes