What determines the composition of national output In some c

What determines the composition of national output? In some cases, we say that there is \"consumer sovereignty.\" meaning that consumers decide how to spend their incomes on the basis of their tastes and market prices. In other cases, decisions are made by political choices of legislatures. Consider the following examples: transportation, education, police, energy efficiency of appliances, health-care coverage, television advertising. For each, describe whether the allocation is by consumer sovereignty or by political decision. Would you change the method of allocation for any of these goods?

Solution

In modern economics goverment tends to intervene in everything. The examples mentioned above shows the same thing. Among all of them television advertisement shows consu

Education and health-care are always provided by government. However, the quality of the services is not optimum most of the time. the presence of private companies offering these services is huge and totally controlled by consumer preferences. Consumers choose their preferred school or hospital, for example.

Police, which is a public good, is also provided by the government in order to control public security, and consumers have no option to choose. Transportation and energy efficiency are, for example, completely regulated by the government in order to increase efficiency by promoting competition and curbing externalities like pollution. In both cases consumers have low influence in the decision-making process.

Television advertising is an example of allocation by the consumer sovereignty. Private companies have the objective of influencing and gathering the greatest number of consumers by meeting consumers\' needs through their tastes and preferences.

Consumer sovereignty generates competition which increases innovation and the quality of goods and services. On the other hand, government interventions generate stability, equity and efficiency.