Topic 2 - Consumers and Business

Question 1

Define the term ‘Consumer Sovereignty’, in a market economy.

Answer 1

The pattern of consumer spending that determines production and allocation of G&S. Consumers control the market demand, while supply must cater to it.

Question 2

List the 4 ways consumer sovereignty can be reduced.

Answer 2

1) Marketing/Advertising
2) Misleading business conduct
3) Planned ‘obsolescence’ of products
4) Anti-competitive behaviour between firms. (Monopoly & Oligopoly)

Question 3

Distinguish between Average Propensity to Consume and Average Propensity to Save.

Include the formula for each.

Answer 3

APC: Proportion of total income spent on consumption
Consumption / Income

APS: Proportion of total income saved for future consumption.
Savings / Income

Note: Both must be between 0 and 1.