Without consumer no business can exist. Consumer Sovereignty refers power of consumer to decide in a free market, what to produce which make him sovereign over the capitalists and entrepreneurs. When a consumer purchases a commodity, a whole chain of events must previously have occurred. A large number of people are engaged in a variety of economic activities to meet the demand of the consumer for commodity, because consumption is the final goal of production.
The consumer by purchasing or refusing to purchase determines the kind and quantities of goods that are to be produced. The consumer is sensitive to price changes. The price of a consumer good is vital in determining the quantity that will be purchased. It is the consumer who determines how much of goods can be sold at various prices. It is also he who determines the kinds of goods that can be sold.
The decision of a consumer as to what and how much to purchase depends on his income. Whether business is planning plant installation, expansion, modernization or production schedules or sales campaign, he must keep in mind not only consumer needs but also the consumer income.