Consumption (economics)
Encyclopedia
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt
. Generally, consumption is defined in part by comparison to production
. But the precise definition can vary because different schools of economists define production
quite 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. See consumer choice. 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
(e.g. the selection, adoption, use, disposal and recycling of goods and services).
Likewise, consumption can be measured by a variety of different ways such as energy
in energy economics
metrics. The total consumer spending
in an economy is generally calculated using the consumption function
, a metric devised by John Maynard Keynes
, which simply expresses consumption as a function of the aggregate disposable income
. This metric essentially defines consumption as the part of disposable income that does not go into saving. But disposable income in turn can be defined in a number of ways - e.g. to include borrowed funds or expenditures from savings.
Consumption also decreases demand
Consumer debt
In economics, consumer debt is outstanding debt of consumers, as opposed to businesses or governments. In macroeconomic terms, it is debt which is used to fund consumption rather than investment...
. Generally, consumption is defined in part by comparison to production
Production theory basics
Production refers to the economic process of converting of inputs into outputs. Production uses resources to create a good or service that is suitable for use, gift-giving in a gift economy, or exchange in a market economy. This can include manufacturing, storing, shipping, and packaging. Some...
. But the precise definition can vary because different schools of economists define production
Production (economics)
In economics, production is the act of creating 'use' value or 'utility' that can satisfy a want or need. The act may or may not include factors of production other than labor...
quite differently. According to mainstream economists
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...
, only the final purchase of goods and services by individuals constitutes consumption, while other types of expenditure — in particular, fixed investment
Fixed investment
Fixed investment in economics refers to investment in fixed capital, i.e., tangible capital goods , or to the replacement of depreciated capital goods which have been scrapped....
, intermediate consumption
Intermediate consumption
Intermediate consumption is an economic concept used in national accounts, such as the United Nations System of National Accounts , the US National Income and Product Accounts and the European System of Accounts .Conceptually, the aggregate "intermediate consumption" is equal to the amount of the...
and government spending — are placed in separate categories. See consumer choice. Other economists define consumption much more broadly, as the aggregate of all economic activity that does not entail the design, production and marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
of goods and services
Goods and services
In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility. It is often used when referring to a Goods and Services Tax....
(e.g. the selection, adoption, use, disposal and recycling of goods and services).
Likewise, consumption can be measured by a variety of different ways such as energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
in energy economics
Energy economics
Energy economics is a broad scientific subject area which includes topics related to supply and use of energy in societies. Due to diversity of issues and methods applied and shared with a number of academic disciplines, energy economics does not present itself as a self contained academic...
metrics. The total consumer spending
Consumer spending
Consumer spending or consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level...
in an economy is generally calculated using the consumption function
Consumption function
In economics, the consumption function is a single mathematical function used to express consumer spending. It was developed by John Maynard Keynes and detailed most famously in his book The General Theory of Employment, Interest, and Money. The function is used to calculate the amount of total...
, a metric devised by John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
, which simply expresses consumption as a function of the aggregate disposable income
Disposable income
Disposable income is total personal income minus personal current taxes. In national accounts definitions, personal income, minus personal current taxes equals disposable personal income...
. This metric essentially defines consumption as the part of disposable income that does not go into saving. But disposable income in turn can be defined in a number of ways - e.g. to include borrowed funds or expenditures from savings.
Consumption also decreases demand
See also
- Anthropological theories of valueAnthropological theories of valueAnthropological theories of value attempt to expand on the traditional theories of value used by economists or ethicists. They are often broader in scope than the theories of value of Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, etc. usually including sociological, political,...
- Classification of Individual Consumption by PurposeClassification of Individual Consumption by PurposeClassification of Individual Consumption according to Purpose is a Reference Classification published by the United Nations Statistics Division that divides the purpose of individual consumption expenditures incurred by three institutional sectors, namely households, non-profit institutions...
(COICOP) - Consumer theoryConsumer theoryConsumer choice is a theory of microeconomics that relates preferences for consumption goods and services to consumption expenditures and ultimately to consumer demand curves. The link between personal preferences, consumption, and the demand curve is one of the most closely studied relations in...
- ConsumerismConsumerismConsumerism is a social and economic order that is based on the systematic creation and fostering of a desire to purchase goods and services in ever greater amounts. The term is often associated with criticisms of consumption starting with Thorstein Veblen...
- Geoffrey Miller (evolutionary psychologist)Geoffrey Miller (evolutionary psychologist)Geoffrey F. Miller , Associate Professor of Psychology at the University of New Mexico, is an American evolutionary psychologist.Miller is a 1987 graduate of Columbia University, where he earned a B.A. in biology and psychology. He received his PhD in cognitive psychology from Stanford University...
- List of largest consumer markets
- MiserMiserA miser, cheapskate, snipe-snout, penny pincher, piker, scrooge, skinflint or tightwad is a person who is reluctant to spend money, sometimes to the point of forgoing even basic comforts and some necessities...
- Over-consumptionOver-consumptionOver-consumption is a situation where resource-use has outpaced the sustainable capacity of the ecosystem. A prolonged pattern of overconsumption leads to inevitable environmental degradation and the eventual loss of resource bases...
- Paradox of thriftParadox of thriftThe paradox of thrift is a paradox of economics, popularized by John Maynard Keynes, though it had been stated as early as 1714 in The Fable of the Bees, and similar sentiments date to antiquity...
- PovertyPovertyPoverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
- WealthWealthWealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo-European word stem...
- UtilityUtilityIn economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....