How do the consumer's decisions relate to business and government?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Consumer decisions have major impacts on every aspect of the economy and society.  This includes the business sector and the government.

One of the major drivers of the business sector is consumer demand.  Consumer demand determines what kinds of things businesses will make.  It determines how many people they will hire and at what wages.  It is the “invisible hand” that Adam Smith says is directing the economy.  For example, the Tesla company has made high performance electric cars and Nissan has its Leaf model that is also electric, though not as high performance.  Now that these cars are on the market, consumer decisions will determine whether one of these cars, both, or neither will actually continue to be produced.

Consumer decisions also impact the government strongly.  For example, local governments get a lot of their revenues from things like sales taxes.  If consumers decide to buy most of their goods locally, their local government benefits because it collects a relatively high amount in sales taxes.  But consumers might also choose to cut spending because they have lost confidence in the economy.  Alternatively, they might buy more things over the internet rather than at local stores.  Either of these decisions will hurt the local government’s tax base and create problems for that government. 

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