The
using up of goods and services to satisfy our wants is known as consumption. Eating is consumption of
food, watching television is consumption of television set, electricity and the
services of Television Company. Like that at school students are
consuming the services of teachers. The spending of money on consumer
goods or services is called consumption
expenditure.
Changes
in patterns of consumption expenditure will vary according to the size and
structure of population When the proportion of school going age group is more
naturally the consumption expenditure for goods and services relating to
education will be high. When there is an aging population the consumption, expenditure on health related
goods and services are more. When the proportion of female is more in an economy, then the consumption
requirement of cosmetic goods and fashion wear will be more.
The
availability of resources in an
economy will also influence the proportion of income spends on
consumption. Although transport of goods reduced the stress, the
traditional staple food of each community is mainly influenced by the
availability.
Changing of economic structure will also make changes in the
pattern of consumption expenditure. An individual in a command economy will have very few
freedom of choice; this will in turn affect the consumer expenditure. The
consumption expenditure of an individual in a capitalist economy will be very high when compared with that of
command economy.
Spending
patterns of high, middle and low-income
group of people of an economy will also be different. Low-income families spend almost all their
income on basic necessities such as food, clothing and shelter. As the
income increases, the percentage income spent on these basic necessities will
get reduced. At the same time, the high-income earners spend more on comforts and luxuries.
Changes in the infrastructural facilities will also
influence spending and saving pattern of the people. The infrastructural facilities such as
public transport system, banking, insurance, stock exchange, communication
etc., will increase the spending of average individuals. Public transport system reduces the
individual’s expenses. Banking
will induce the people to save more with convenience which reduce
consumption spending. Insurance
companies enable to reduce the insurable risk by paying a premium which
is an addition to their spending. Stock exchange enable people to take part in business with limited
liability, which encourage saving. Cost incurred on communication is
another addition to consumption expenditure.
An
individual in a developed country can afford to pay for his / her
consumption expenditure [including comforts and luxuries]. This is
because the high standard of living due to the high income in the developed
countries. At the same time, it is very difficult for an individual in a
developing country to afford more than his / her basic necessities. This
is due to the vicious circle or poverty
trap [low income –low consumption- low saving – low investment –low
production –low income] prevailing in the developing
countries.
When
economies undergo growth there
will be an increase in the consumption expenditure, this is simultaneously due
to the increase in aggregate demand.
Demand for labour is a derived demand.
So an increase in the demand for product will bring about more employment
opportunity and thereby increase in the income. This will increase the
consumption expenditure.
Another
effect of consumption expenditure is due to the changes in the value of money. A very low level inflation is
advisable an economy. A very
low inflation will cause pessimism in the markets which will boost the
economic activity which in turn increase consumption expenditure. The
reduction in the value of money over a long period of time will cause a
reduction in consumer expenditure.
Consumption
expenditure is the amount spent on goods and services to
satisfy their current wants. As income rises the total amount spend
is likely to increase however, the proportion spent tends to decline.
The
following are the factors influences an
individual’s consumption.
1) The main influence on consumption is income. [Some economists argue that
consumption is based on their current
income, while others are of the opinion that it is on their life-time income. One more
argument is that consumption is influenced by their current income compared
with their previous income.
2) People likely to spend if they can borrow easier and cheaper. People sometimes even spend
even more then they earn [Dis-saving].
3) Distribution
of income will also influence consumption spending. Middle and low
income people will reduce their spending when income reduces where as high
income will not.
4) Age
structure is another factor which influences consumption. Middle aged
people spend less than the young.
5) The effects
of inflation on spending are uncertain. Expectations of price rise tempt
to bring forward the purchases.
6) Indirect
taxation likely to reduce consumption.
7) Availability
of higher quality and wide range of goods and services tend to increase
the spending.
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