INTERMEDIATE MICROECONOMICS

3. Producer Theory

3.1 Who is a Producer?

Who is a producer?  There are in fact two types of producers - producers of final consumer goods and services as well as producers of intermediate goods and services intended for use in the production process of final goods and services.  Attention in intermediate theory focuses on producers of final or consumer goods and services.

A producer is therefore someone - natural or legal persons - who produces final goods and services (tangible or intangible) from which consumers extract utility.  In this sense the primary economic role of the producer is to satisfy the needs, wants and desires of consumers.  The line of causality flows from the consumer (needs, wants and desires) to the producer (goods & services) back to the consumer (satisfaction through the extraction of utility from final goods and services).  In theory this is called 'consumer sovereignty', or put another way, the customer is always right!

It is important to appreciate that 'goods and services' include intangible things such as distribution or availability not just physical or tangible things like furniture and clothing.  A producer can therefore be a 'mom and pop' corner or 'convenience' store that purchases goods from manufacturers and makes them easily available to local customers.  In this case the product is convenience or ease of access.  The producer charges a price for this service.  Alternatively, a producer may be a 'big box' store like Walmart or Superstore that similarly makes final goods and services available to consumers but usually at significantly lower prices than a corner store but with travel cost borne by the consumer.

The question as to whether or not consumer sovereignty actually operates is one of ongoing concern to economists.  Can the tastes and preferences (or, if you will, the needs, wants and desires) of consumers be manipulated or even created by producers through, for example, advertising?  Alternatively, as Henry Ford allegedly said: "Customers can have any colour of car they want as long as it is black."  The dominance of certain producers may therefore affect not only price but also limit choices available to consumers.  This question lays at the heart of the anti-trust case against Microsoft - "You can have any computer operating system you want as long as its Windows".