When you buy a good or service, you rarely have perfect knowledge of its quality and safety. You are justifiably concerned about getting “ripped off.” Thus the need for consumer protection.
Economic activity flourishes when consumers can trust producers, but the consumer must have grounds for trust. Consumers value, then, not only quality and safety, but also the assurance of quality and safety. Trust depends on assurance.
Everyday, you make tons of decisions about consumption. Your choices about what and how much of a good to buy are influenced by the laws of supply and demand. These choices are nearly endless. See Introduction to Consumer Choice at Marginal Revolution University.
A Little History: Primary Sources and References
Advanced Resources
To what extent do people act as consumers within the framework of government transfer payment programs? Linda Gorman, Who Attends You When You Are Ill? Attendant Services Under Consumer-directed Health Care. June 6, 2011.
Properly aligning incentives means that the people spending the money must be encouraged to voluntarily economize on their use of health care by being subjected to a spending constraint that requires them to choose between medical care and other goods. They must also be free to negotiate for those services as they see fit. In the Medicaid experiments described below, people are typically given a budget for buying the care that Medicaid officials think their physical condition warrants and then are given the freedom to negotiate the price and bundle of services that best fit their circumstances. Because they have more control over how the money is spent and can get more care if they spend it wisely, they are able to buy services that better fit their health needs and living conditions. Their health improves, thus reducing the cost of providing them with medical care.
To earn a profit, businesses must increase your “consumer surplus” by giving you better products or charging you less money. See Consumer Surplus at LearnLiberty.
Related Topics
Demand
Opportunity Cost
Trade, Exchange and Interdependence
Barriers to Trade
Producers
Saving and Investing
Human Capital