Consumption (economics)

Consumption, defined as spending for acquisition of utility, is a major concept in economics and is also studied in many other social sciences. It is seen in contrast to investing, which is spending for acquisition of future income.[1]

Different schools of economists define consumption differently. According to mainstream economists, only the final purchase of newly produced goods and services by individuals for immediate use 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).

Economists are particularly interested in the relationship between consumption and income, as modeled with the consumption function.

Behavioural economics, keynesian consumption function

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's permanent income hypothesis and 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.[2]

Consumption and household production

Aggregate consumption is a component of aggregate demand.[3]

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, 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.[4][5] 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.[6]

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.

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

References

  1. ^ Black, John; Hashimzade, Nigar; Myles, Gareth (2009). A Dictionary of Economics (3 ed.). Oxford University Press. ISBN 9780199237043.
  2. ^ 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.
  3. ^ "CONSUMPTION GROWTH 101". Archived from the original on 2012-05-06.
  4. ^ Mincer, Jacob (1963). "Market Prices, Opportunity Costs, and Income Effects". In Christ, C. (ed.). Measurement in Economics. Stanford, CA: Stanford University Press.
  5. ^ Becker, Gary S. (1965). "A Theory of the Allocation of Time". Economic Journal. 75 (299): 493–517. JSTOR 2228949.
  6. ^ 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.

Further reading

  • Bourdieu, Pierre (1984). Distinction: A Social Critique of the Judgement of Taste (paperback). Cambridge: Harvard University Press. ISBN 978-0-674-21277-0.
  • Deaton, Angus (1992). Understanding Consumption. Oxford University Press. ISBN 978-0-19-828824-4.
  • Friedman, Jonathan (1994). Consumption and Identity (Studies in Anthropology & History). Washington, DC: Taylor & Francis. ISBN 978-3-7186-5592-2.
  • Isherwood, Baron C.; Douglas, Mary (1996). The World of Goods: Towards an Anthropology of Consumption (Paperback). New York: Routledge. ISBN 978-0-415-13047-9.
  • 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. ISBN 978-0-7619-5438-5.CS1 maint: Extra text: authors list (link)
  • Miller, Daniel (1998). A Theory of Shopping (paperback). Ithaca, N.Y.: Cornell University Press. ISBN 978-0-8014-8551-0.
  • Slater, Don (1997). Consumer Culture and Modernity. Cambridge, UK: Polity Press. ISBN 978-0-7456-0304-9.

External links

Affluenza

Affluenza, a portmanteau of affluence and influenza, is a term used most commonly by critics of consumerism. It is thought to have been first used in 1954, but was popularised in 1997 with a PBS documentary of the same name and the subsequent book Affluenza: The All-Consuming Epidemic (2001, revised in 2005, 2014). These works define affluenza as "a painful, contagious, socially transmitted condition of overload, debt, anxiety, and waste resulting from the dogged pursuit of more". A more informal definition of the term would describe it as 'a quasi-illness caused by guilt for one's own socio-economic superiority'. The term "affluenza" has also been used to refer to an inability to understand the consequences of one's actions because of financial privilege, such as in the case of Ethan Couch.

Agriculture in Malaysia

Agriculture in Malaysia makes up twelve percent of the nation's GDP. Sixteen percent of the population of Malaysia is employed through some sort of agriculture. Large-scale plantations were established by the British. These plantations opened opportunity for new crops such as rubber (1876), palm oil (1917), and cocoa (1950). A number of crops are grown for domestic purpose such as bananas, coconuts, durian, pineapples, rice and rambutan.

Alternative culture

Alternative culture is a type of culture that exists outside or on the fringes of mainstream or popular culture, usually under the domain of one or more subcultures. These subcultures may have little or nothing in common besides their relative obscurity, but cultural studies uses this common basis of obscurity to classify them as alternative cultures, or, taken as a whole, the alternative culture. Compare with the more politically charged term, counterculture.

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 in income; generally, it may be required to fund necessities and debt obligations. If income levels are actually zero, this consumption counts as dissaving, because it is financed by borrowing or using up savings. Autonomous consumption contrasts with induced consumption, in that it does not systematically fluctuate with income, whereas induced consumption does. The two are related, for all households, through the consumption function:

where

Consumer capitalism

Consumer capitalism is a theoretical economic and social political condition in which consumer demand is manipulated in a deliberate and coordinated way on a very large scale through mass-marketing techniques, to the advantage of sellers.

This theory is controversial. It suggests manipulation of consumer demand so potent that it has a coercive effect, amounts to a departure from free-market capitalism, and has an adverse effect on society in general. According to one source, the power of such 'manipulation' is not straightforward. It depends upon a new kind of individualism - projective individualism, where persons use consumer capitalism to project the kind of person who they want to be.Some use the phrase as shorthand for the broader idea that the interests of other non-business entities (governments, religions, the military, educational institutions) are intertwined with corporate business interests, and that those entities also participate in the management of social expectations through mass media.

Consumption

Consumption may refer to:

Resource consumption

DIY ethic

DIY ethic is the ethic of self-sufficiency through completing tasks without the aid of a paid expert. The "do it yourself" (DIY) ethic promotes the idea that anyone is capable of performing a variety of tasks rather than relying on paid specialists.

The DIY ethic requires that the adherent seeks out the knowledge required to complete a given task. This ethic emerges in correspondence to the punk subculture, the DIY ethic is tied to punk ideology and anticonsumerism. Central to the ethic is the empowerment of individuals and communities, encouraging the employment of alternative approaches when faced with bureaucratic or societal obstacles to achieving their objectives.

Do it yourself

"Do it yourself" ("DIY") is the method of building, modifying, or repairing things without the direct aid of experts or professionals. Academic research describes DIY as behaviors where "individuals engage raw and semi-raw materials and parts to produce, transform, or reconstruct material possessions, including those drawn from the natural environment (e.g., landscaping)". DIY behavior can be triggered by various motivations previously categorized as marketplace motivations (economic benefits, lack of product availability, lack of product quality, need for customization), and identity enhancement (craftsmanship, empowerment, community seeking, uniqueness).The term "do-it-yourself" has been associated with consumers since at least 1912 primarily in the domain of home improvement and maintenance activities. The phrase "do it yourself" had come into common usage (in standard English) by the 1950s, in reference to the emergence of a trend of people undertaking home improvement and various other small craft and construction projects as both a creative-recreational and cost-saving activity.

Subsequently, the term DIY has taken on a broader meaning that covers a wide range of skill sets. DIY is associated with the international alternative rock, punk rock, and indie rock music scenes, indymedia networks, pirate radio stations, and the zine community. In this context, DIY is related to the Arts and Crafts movement, in that it offers an alternative to modern consumer culture's emphasis on relying on others to satisfy needs. It has also become prevalent in the personal finance. When investing in the stock one can utilize a professional advisor or partake in do-it-yourself investing.

Domestic spending

Domestic spending may refer to:

Consumption (economics)

Investment (macroeconomics)

Government spending

Escape from Affluenza

Escape from Affluenza is a 1998 PBS 56-minute documentary film produced as a sequel to the 1997 documentary Affluenza. While the original concentrates on affluenza--consumerism and materialism in modern society, the sequel focuses on how to avoid this. It looks at stories of how to reduce debt, stress, time-pressure, and possession-overload.The cast includes Wanda Urbanska as the host and Cecile Andrews, author of "Circle of Simplicity".

Human consumption

Human consumption may refer to:

Anthropophagy (disambiguation), the consumption of humans

Consumption (economics), consumption of goods by humans

Consumer (food chain), consumption of other organisms by humans

Consumption (sociology)

Tuberculosis, historically called consumption

Hyperconsumerism

Hyperconsumerism, hyper-consumerism, hyperconsumption or hyper-consumption refer to the consumption of goods for non-functional purposes and the associated significant pressure to consume those goods exerted by the modern, capitalist society, as those goods shape one's identity. Frenchy Lunning defines it curtly as "a consumerism for the sake of consuming."

Post-consumerism

Post-consumerism is often suggesting that there is a growing willingness to assert that well-being, as distinct from material success, is the aim of life. Post-consumerism can also be viewed as moving beyond the current model of addictive consumerism. This personal and societal strategy utilizes each individual's core values to identify the "satisfaction of enough for today." The intent and outcome of this basic strategy to date has "reached people where they are rather than simply where we are."

Productivism

Productivism or growthism is the belief that measurable productivity and growth are the purpose of human organization (e.g., work), and that "more production is necessarily good". Critiques of productivism center primarily on the limits to growth posed by a finite planet and extend into discussions of human procreation, the work ethic, and even alternative energy production.

Purchasing power

Purchasing power is the amount of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it would have been possible to buy a greater number of items than would be the case today, indicating that the currency had a greater purchasing power in the 1950s.Currency can be either a commodity money, like gold or silver, or fiat money emitted by government sanctioned agencies.

If one's monetary income stays the same, but the price level increases, the purchasing power of that income falls. Inflation does not always imply falling purchasing power of one's money income since the latter may rise faster than the price level. A higher real income means a higher purchasing power since real income refers to the income adjusted for inflation.

Traditionally, the purchasing power of money depended heavily upon the local value of gold and silver, but was also made subject to the availability and demand of certain goods on the market. Most modern fiat currencies like US dollars are traded against each other and commodity money in the secondary market for the purpose of international transfer of payment for goods and services.

As Adam Smith noted, having money gives one the ability to "command" others' labor, so purchasing power to some extent is power over other people, to the extent that they are willing to trade their labor or goods for money or currency.

For a price index, its value in the base year is usually normalized to a value of 100. The purchasing power of a unit of currency, say a dollar, in a given year, expressed in dollars of the base year, is 100/P, where P is the price index in that year. So, by definition the purchasing power of a dollar decreases as the price level rises.

Adam Smith used an hour's labour as the purchasing power unit, so value would be measured in hours of labour required to produce a given quantity (or to produce some other good worth an amount sufficient to purchase the same).

Slow Food

Slow Food is an organization that promotes local food and traditional cooking. It was founded by Carlo Petrini in Italy in 1986 and has since spread worldwide. Promoted as an alternative to fast food, it strives to preserve traditional and regional cuisine and encourages farming of plants, seeds, and livestock characteristic of the local ecosystem. It was the first established part of the broader slow movement. Its goals of sustainable foods and promotion of local small businesses are paralleled by a political agenda directed against globalization of agricultural products.

Sustainable consumption

As a compliment to analyses of production and its processes, Sustainable Consumption (SC) is the study of resource and energy use (domestic or otherwise). As the term sustainability would imply, those who study SC seek to apply the concept of “continuance”—the capacity to meet both present and future human generational needs. SC, then, would also include analyses of efficiency, infrastructure, and waste, as well as access to basic services, green and decent jobs and a better quality of life for all. It shares a number of common features with and is closely linked to the terms sustainable production and sustainable development. Sustainable consumption as part of sustainable development is a prerequisite in the worldwide struggle against sustainability challenges such as climate change, resource depletion, famines or environmental pollution.

Sustainable development as well as sustainable consumption rely on certain premises such as:

Effective use of resources, and minimisation of waste and pollution

Use of renewable resources within their capacity for renewal

Fuller product life-cycles

Intergenerational and intragenerational equity

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