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CONSUMPTION is a major concept in economics and is also studied in many other social sciences. Economists are particularly interested in the relationship between consumption and income, as modeled with the consumption function.

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 (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).

CONTENTS

* 1 Consumption function
Consumption function
* 2 Behavioural economics and consumption * 3 Consumption and household production * 4 Effects of consumption * 5 Old-age spending * 6 See also * 7 References * 8 Further reading * 9 External links

CONSUMPTION FUNCTION

Main article: Consumption function
Consumption function

The consumption function is a mathematical function that expresses consumer spending in terms of its determinants, such as income and accumulated wealth .

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 (or lack of). Criticism of this assumption led to the development of Milton Friedman
Milton Friedman
's permanent income hypothesis and Franco Modigliani
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
Economics
, commercial consumption has to be analyzed in the context of household production. The 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 (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).

Consumption can also be measured by a variety of different ways such as energy in energy economics metrics.

EFFECTS OF CONSUMPTION

Aggregate consumption is a component of aggregate demand . According to the UN, "today’s consumption is undermining the environmental resource base. It is exacerbating inequalities . And the dynamics of the consumption-poverty -inequality-environment nexus are accelerating. If the trends continue without change — not redistributing from high-income to low-income consumers, not shifting from polluting to cleaner goods and production technologies, not shifting priority from consumption for conspicuous display to meeting basic needs — today’s problems of consumption and human development will worsen." Developing countries like India, as they move down the path of copying the consumption patterns of developed economies, will basically create demands that earth will not be able to fulfill. Some economists talk about putting a price on using earth\'s resources which is in addition to the cost of just extracting them.

OLD-AGE SPENDING

Spending the Kids' Inheritance (originally the title of a book on the subject by Annie Hulley ) 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 (from the book Die Broke: A Radical Four-Part Financial Plan by Stephen Pollan and Mark Levine ) is a similar idea.

SEE ALSO

* Aggregate demand
Aggregate demand
* Life cycle hypothesis
Life cycle hypothesis
* Measures of national income and output * Permanent income hypothesis * Consumer debt
Consumer debt
* Classification of Individual Consumption by Purpose (COICOP) * Consumer choice
Consumer choice
* Consumerism
Consumerism
* List of largest consumer markets * Overconsumption

REFERENCES

* ^ D'Orlando, F.; Sanfilippo, E. (2010). "Behavioral foundations for the Keynesian Consumption Function". Journal of Economic Psychology . 31 (6): 1035–1046. doi :10.1016/j.joep.2010.09.004 . * ^ Mincer, Jacob (1963). "Market Prices, Opportunity Costs, and Income Effects". In Christ, C. Measurement in Economics. Stanford, CA: Stanford University Press. * ^ Becker, Gary S. (1965). "A Theory of the Allocation of Time". Economic Journal. 75 (299): 493–517. JSTOR
JSTOR
2228949 . * ^ Grossbard-Shechtman, Shoshana (2003). "A Consumer Theory with Competitive Markets for Work in Marriage". Journal of Socio-Economics. 31 (6): 609–645. doi :10.1016/S1053-5357(02)00138-5 . * ^ "CONSUMPTION GROWTH 101".

FURTHER READING

* Bourdieu, Pierre (1984). Distinction: A Social Critique of the Judgement of Taste (paperback). Cambridge: Harvard University Press
Harvard University Press
. ISBN 0-674-21277-0 . Also:. Lincoln: London. 1984. ISBN 0-415-04546-0 . Missing or empty title= (help ) * Deaton, Angus (1992). Understanding Consumption. Oxford University Press . ISBN 0-19-828824-7 . * Friedman, Jonathan (1994). Consumption and Identity (Studies in Anthropology & History). Washington, DC: Taylor & Francis
Taylor & Francis
. ISBN 3-7186-5592-6 . * Isherwood, Baron C.; Douglas, Mary (1996). The World of Goods: Towards an Anthropology of Consumption (Paperback). New York: Routledge
Routledge
. ISBN 0-415-13047-6 . * Ivanova, Diana; Stadler, Konstantin; Steen-Olsen, Kjartan; Wood, Richard; Vita, Gibran; Tukker, Arnold; Hertwich, Edgar G. (18 December 2015). "Environmental Impact Assessment of Household Consumption". Journal of Industrial Ecology . 20 (3): 526–536. doi :10.1111/jiec.12371 . * Mackay, Hugh (Editor) (1997). Consumption and Everyday Life (Culture, Media and Identities series) (Paperback). Thousand Oaks, Calif: SAGE Publications
SAGE Publications
. ISBN 0-7619-5438-4 . CS1 maint: Extra text: authors list (link ) * Miller, Daniel (1998). A Theory of Shopping (paperback). Ithaca, N.Y. : Cornell University Press
Cornell University Press
. ISBN 0-8014-8551-7 . * Slater, Don (1997). Consumer Culture and Modernity. Cambridge, UK: Polity Press. ISBN 0-7456-0304-1 .

EXTERNAL LINKS