Induced consumption is the portion of
consumption
Consumption may refer to:
*Resource consumption
*Tuberculosis, an infectious disease, historically
* Consumption (ecology), receipt of energy by consuming other organisms
* Consumption (economics), the purchasing of newly produced goods for curren ...
that varies with
disposable income
Disposable income is total personal income minus current income taxes. In national accounts definitions, personal income minus personal current taxes equals disposable personal income. Subtracting personal outlays (which includes the major c ...
. When a change in disposable income “induces” a change in consumption on goods and services, then that changed consumption is called “induced consumption”. In contrast, expenditures for
autonomous consumption
Autonomous consumption (also exogenous consumption) is the consumption expenditure that occurs when income levels are zero. Such consumption is considered autonomous of income only when expenditure on these consumables does not vary with changes i ...
do not vary with income. For instance, expenditure on a consumable that is considered a
normal good
In economics, a normal good is a type of a Good (economics), good which experiences an increase in demand due to an increase in income, unlike inferior goods, for which the opposite is observed. When there is an increase in a person's income, for ...
would be considered to be induced.
In the simple linear
consumption function
In economics, the consumption function describes a relationship between consumption and disposable income. The concept is believed to have been introduced into macroeconomics by John Maynard Keynes in 1936, who used it to develop the notion of a ...
,
induced consumption is represented by the term
, where
denotes disposable income and
is called the
marginal propensity to consume
In economics, the marginal propensity to consume (MPC) is a metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) occurs with an increase in disposable income (income after taxes and t ...
.
References
*
Consumption (macroeconomics)
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