consumption

consumption

[kuhn-suhmp-shuhn]
consumption, in economics, direct utilization of goods and services by consumers, not including the use of means of production, such as machinery and factories (see capital). Consumption can be divided into public and private sectors. Consumption is also viewed as a basically subjective phenomenon, with individual utility, or satisfaction, assuming primary importance. The foremost economist associated with the subjective view was Jeremy Bentham (1748-1832), whose English followers sought to measure quantitatively the utility provided by consumption. The process of consumption is central to any system of economics; Adam Smith made it the sole end of production. Production, the wholesale and retail trades, and consumption are closely linked, and the exchange of goods and services for money along the various stages from the producer to the ultimate consumer is the foundation of modern capitalist economy. In the 1930s, John Maynard Keynes introduced the influential theory of consumption function, which described the relationship between consumer income and consumption. Advertising and marketing are today the chief means by which manufacturers and retailers seek to increase consumption, leading many to contend that modern consumption is often governed by false needs. Such economists as Thorstein Veblen have tried to explain how advertising and marketing can affect consumer choices, where a number of different products are essentially the same. Contemporary economics has increasingly concerned itself with studying total consumption in an effort to implement effective government controls of the business cycle. Experience has shown that through taxation the modern government is often able to regulate the amount of its citizenry's disposable income, thus ultimately affecting the nation's total consumption.

See D. E. Nye and C. Pederson, Consumption and American Culture (1991).

Levy such as an excise tax, a sales tax, or a tariff paid directly or indirectly by the consumer. Consumption taxes fall more heavily on lower-income than on upper-income groups because people with less money consume a larger proportion of their income than those with more money. Seealso progressive tax, regressive tax.

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In economics, the final using up of goods and services. The term excludes the use of intermediate products in the production of other goods (e.g., the purchase of buildings and machinery by a business). Economists use statistical information on income and purchases to trace trends in consumption, seeking to map consumer demand for goods and services. In classical economics, consumers are assumed to be rational and to allocate expenditures in such a way as to maximize total satisfaction from all purchases. Incomes and prices are seen as consumption's two major determinants. Critics of the model point out that there are many exceptions to rational consumer behaviour—for example, the phenomenon of conspicuous consumption, in which the high price of a product increases its prestige and adds to demand.

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