Consumption is a major concept in economics
and is also studied by many other social sciences.
Economists are particularly interested in
the relationship between consumption and income,
and therefore in economics the consumption
function plays a major role.
Different schools of economists define production
and consumption differently. According to
mainstream economists, only the final purchase
of goods and services by individuals constitutes
consumption, while other types of expenditure
— in particular, fixed investment, intermediate
consumption, and government spending — are
placed in separate categories. Other economists
define consumption much more broadly, as the
aggregate of all economic activity that does
not entail the design, production and marketing
of goods and services.
Consumption function
It is a single mathematical function used
to express consumer spending. Complete article
at consumption function.
Behavioural Economics and Consumption
The Keynesian consumption function is also
known as the absolute income hypothesis, as
it only bases consumption on current income
and ignores potential future income. Criticism
of this assumption lead to the development
of Milton Friedman's permanent income hypothesis
and Franco Modigliani's life cycle hypothesis.
More recent theoretical approaches are based
on behavioral economics and suggest that a
number of behavioural principles can be taken
as microeconomic foundations for a behaviourally-based
aggregate consumption function.
Consumption and Household Production
Consumption is defined in part by comparison
to production. In the tradition of the Columbia
School of Household Economics also known as
the New Home Economics commercial consumption
has to be analyzed in the context of household
production. Opportunity cost of time affects
the cost of home-produced substitutes and
therefore demand for commercial goods and
services. The elasticity of demand for consumption
goods is also a function of who performs chores
in households and how their spouses compensate
them for opportunity costs of home production.
Different schools of economists define production
and consumption differently. According to
mainstream economists, only the final purchase
of goods and services by individuals constitutes
consumption, while other types of expenditure
— in particular, fixed investment, intermediate
consumption, and government spending — are
placed in separate categories. Other economists
define consumption much more broadly, as the
aggregate of all economic activity that does
not entail the design, production and marketing
of goods and services.
Consumption can also be measured by a variety
of different ways such as energy in energy
economics metrics.
Effects of consumption
Aggregate consumption can increase aggregate
demand.
Old-age spending
Spending the Kids' Inheritance and the acronyms
SKI and SKI'ing refer to the growing number
of older people in Western society spending
their money on travel, cars and property,
in contrast to previous generations who tended
to leave that money to their children.
Die Broke is a similar idea.
See also
Aggregate demand
Life cycle hypothesis
Measures of national income and output
Permanent income hypothesis
consumer debt
Classification of Individual Consumption by
Purpose
Consumer choice
Consumerism
List of largest consumer markets
Over-consumption
References
Further reading
Bourdieu, Pierre. Distinction: A Social Critique
of the Judgement of Taste. Cambridge: Harvard
University Press. ISBN 0-674-21277-0.  Also:.
Lincoln: London. 1984. ISBN 0-415-04546-0. 
Deaton, Angus. Understanding Consumption.
Oxford University Press. ISBN 0-19-828824-7. 
Friedman, Jonathan. Consumption and Identity.
Washington, DC: Taylor & Francis. ISBN 3-7186-5592-6. 
Isherwood, Baron C.; Douglas, Mary. The World
of Goods: Towards an Anthropology of Consumption.
New York: Routledge. ISBN 0-415-13047-6. 
Hernandez Nuñez, Rafael J.. The Consumption
Expenditure Function. Know,Think,Write. ISBN 1-49-732400-9. 
Mackay, Hugh. Consumption and Everyday Life.
Thousand Oaks, Calif: SAGE Publications. ISBN 0-7619-5438-4. 
Miller, Daniel. A Theory of Shopping. Ithaca,
N.Y.: Cornell University Press. ISBN 0-8014-8551-7. 
Slater, Don. Consumer Culture and Modernity.
Cambridge, UK: Polity Press. ISBN 0-7456-0304-1. 
External links
An essay examining the strengths and weaknesses
of Keynes's theory of consumption
