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Source: https://en.wikipedia.org/w/index.php?

title=Consumption_(economics)&printable=yes
Consumption (economics)
Consumption is a major concept in economics and is also studied by many other social sciences.
Economists are particularly interested in the relationship between consumption and income, as modeled
with theconsumption 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).
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'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.[1]
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, commercial consumption has to be
analyzed in the context of household production. The opportunity cost of time affects the cost of homeproduced substitutes and therefore demand for commercial goods and services.[2][3] 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.[4]
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.[5] According to the UN, "todays
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 todays 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
economiststalk 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
theirmoney 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.