Consumption (economics) Totally Explained

ť For other uses, see consumption

In economics, consumption refers to the final use of goods and services to provide utility.

Keynesian economics and aggregate consumption

In Keynesian economics aggregate consumption is total personal consumption expenditure, for example, the purchase of currently produced goods and services out of income, out of savings (net worth), or from borrowed funds. It refers to that part of disposable income (income after taxes paid and payments received) that doesn't go to saving.
   Discussions of human consumption of resources play an important role in both economics, environmentalism and geographical analysis.
   In Keynesian economics, "consumption" is short-hand for personal consumption expenditure and is determined by the consumption function, especially by the marginal propensity to consume. It is part of aggregate demand or effective demand.
   Consumption can also be defined as "the selection, adoption, use, disposal and recycling of goods and services", as opposed to their design, production and marketing.

History

John Maynard Keynes developed the idea of the consumption function, which sees a consumption as consisting of two main parts:

Induced consumption refers to increases in consumer spending that occur as disposable income rises. Increases in consumption follow the famous marginal propensity to consume. An increase in disposable income leads to an increase in consumption, moving along the consumption function in a graph.
Autonomous consumption refers to consumption spending done as part of long-term plans for the future (smoothing out income fluctuations, providing for retirement and other expected future events, etc.) and as a result of habits and contractual commitments. Changes in plans, expectations, habits, etc. leads to shifts of the consumption function in a graph.

Often, as in the permanent income hypothesis, the word "consumption" refers instead to the benefit received from consumer goods and services (as opposed to the amount spent on such products).

Studies

Studies of consumption investigate how and why society and individuals consume goods and services, and how this affects society and human relationships. Contemporary studies focus on meanings, role of consumption in identity making, and the 'consumer' society. Traditionally, consumption was seen as rather unimportant compared to production, and the political and economic issues surrounding it. With the development of a consumer society, increasing consumer power in the market place, the growth in marketing, advertising, sophisticated consumers, ethical consumption etc, it's recognised as central to modern life. Sociology of consumption has moved well beyond Veblen's early work on 'conspicuous' consumption. Current theories investigate the role of economic and cultural factors in constraining consumption, as development of an approach that sees consumers as 'victims' of producers and their social situation. A counter theory highlights the subversive aspects of consumption, with consumers buying and using goods, places etc in ways unintended by the producers. Examples include city squares turned to skateboard parks, and music sharing on the internet.
Studies of consumption come from a variety of backgrounds. Consumer studies attempt to help marketing. User research aims to improve product design. Feminist studies highlight the importance of women as consumers, and particularly the role of the domestic arena in consumption. Media studies try to understand the consumption of media products such as television and video games. Critical Theory is an important influence on contemporary studies, as consumption is central to contemporary culture.
Studying consumption can be done through traditional survey methods, or various ethnographic techniques. Consumption studies are difficult because they involve investigating everyday life situations, bringing research into the private domain, rather than formalised settings such as the workplace.

Bibliography

Pierre Bourdieu (1979) 'Distinction', Routledge

Daniel Miller (1998) 'A Theory of Shopping', Polity

Slater (1997) 'Consumer Culture and Modernity'

Friedman (1994) 'Consumption and Identity'

Mackay (1997) 'Consumption and Everyday Life'

Mary Douglas and B. Isherwood (1979) 'The World of Goods', Routledge

Angus Deaton (1992), Understanding Consumption. Oxford University Press, ISBN 0198288247.

External results

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