Why is a consumer very significant in an economy?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In a market economy, consumers are very important (though each individual consumer is not so important). 

Consumers determine what products will be made.  They do this through their buying decisions.  Anything that consumers do not buy in high enough numbers ceases to exist as a product.  

Consumers also do a great deal to determine the overall health of an economy.  About two-thirds of the Gross Domestic Product of the US is made up of consumer spending.  If consumers lose confidence in the economy and stop spending, the economy can go into a recession or can fail to grow as rapidly as it otherwise would.

In these two ways, consumers are extremely important in a market/open economy.

michael-niagara's profile pic

Michael Ugulini | (Level 3) Educator

Posted on

A consumer is very significant in an economy because he or she is the lifeblood of companies that produce goods and services and create jobs. By extension, consumers determine the viability of companies and the viability of nations, as these companies pay corporate taxes to the government of the country in which they operate. Failing and fallen companies pay less - or no taxes if they cease to exist - to these governments.

Then the negative side of the trickle down effect occurs; a government with less tax revenue often cuts services it provides to its citizens - the consumers. Therefore, consumers drive the health of companies and the health of nations. In addition, consumers, with their various demands, prompt companies to innovate and come up with better products and services in order to survive in an ultra-competitive marketplace.

Consumers are truly Kings and Queens of an economy. Their purchasing power dictates the corporate missions of enterprises and the tax revenue of governments (with policies, programs, and missions of their own).

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