Explain why the role of a consumer is important in an economic system.

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Because most people have limited financial resources, they must constantly make choices about where they will spend their money. Each time they make a purchase, they become a consumer of some type of good(s).

These purchases can be thought of as little votes that each person makes, one transaction at a time. If I spend $5 on a coffee from a local coffee house instead of a large coffee chain, I am then "voting" with my money on the best place to drink coffee.

These little economic consumer votes add up. If lots of people give their money to the small coffee shop, it will thrive and be successful. If people instead give their money to the big chain coffee store, the small business will likely have to close its doors.

Consumers, then, have lots of power in our economy. They decide through each individual transaction which products and businesses will thrive and which ones will collapse. These changes happen over long periods of time, and business which see many consumers today may not see them 5 years from now if they don't pay attention to the ways their clients' needs change over time. All of us can likely think of some retail giants who were incredibly successful in the past but who are now bankrupt and closed because consumers stopped giving them the money they needed to remain in business.

It is also worth noting that when consumers as a whole are spending lots of money on luxuries (vacations, high-end clothing, boats, etc), they are reflecting that they have a high level of confidence in their economy. When consumers stop spending and begin saving more, it reflects that they believe the economy is in trouble. Sometimes just the idea that the economy is in trouble is enough to make people spend less—which then makes the economy take a dive. Consumer confidence is key to a thriving economy.

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The consumer dictates so much...

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