In a market economy , actions by consumers, through their spending and buying, sends powerful messages to business firms about the types and the quantity of goods and services they should be producing.
In a mixed market economy business firms reduce the power of consumer sovereignty by
1. Marketing and advertising
2. Misleading information
3. Designing products to wear out or out date quickly
4. Entering into secret agreements and to compete with each other
Spend or save
There are only 2 things income can be used for; it can either be spent of saved. Income which is represented by (Y) is equal to consumption (C), plus savings (S). As a general rule people on high income have a greater likely hood to save more of their income than those people with low income.
Low income earners are likely to spend most of their income. The word propensity means likelihood and in economies we use this word to discuss spending and saving habits. * Cultural Factors: For example in some East Asian economies some East Asian economies people tend to save more of their income then people in other industrialised economies , and previous generations tended to save more than people today. * Personality Factor: Some people are more cautious and prefer to have savings in case of any future need, while others would rather enjoy the immediate benefits their money can bring. * Expectations of the future: People who expect their income to rise in the future are less likely to worry about saving now * Any specific future spending plan: Individuals might save more if they are planning a major expense in the future, such as a holiday or purchasing a car * Tax policies: The tax system can influence an individual’s patterns of consumption
* As income rise most consumers will be in a position to increase their savings. As income rise people do not need as much of their income to satisfy basic needs. * The property to save is