Final answer:
Consumption expenditure includes spending on durable goods, nondurable goods, and services, influenced mainly by disposable income.
Examples include buying vehicles, groceries, or paying for services like healthcare. Evidence shows the relation between consumption and income, while advertising promotes commodity consumption in industrial societies.
Step-by-step explanation:
Consumption refers to spending by households and individuals on goods and services. The consumption expenditure includes purchases of durable goods such as automobiles, which provide value over time, and nondurable goods such as groceries that are immediately used or consumed. Services are intangible purchases like healthcare or entertainment that individuals pay for.
John Keynes, a prominent economist, identified key factors that influence consumption patterns. One primary factor is disposable income. This refers to the income that households have after taxes, which is directly linked to their consumption behavior. Generally, an increase in disposable income will lead to an increase in consumption.
Examples of Consumption
- Purchasing a new vehicle (a durable good)
- Buying groceries or food items (nondurable goods)
- Paying for a movie ticket or a medical checkup (services)
Empirical evidence on consumption, such as the analysis of consumption and disposable income from 1962 to 2010, shows how real levels of consumption are related to real income levels, adjusted for inflation.
Moreover, consumption is a central component in understanding economies, especially in industrial societies where sheer quantity and the culture of commodity consumption are evident.
Industrialized societies produce a vast amount of goods, resulting in immense waste like unsold food and apparel. Advertising plays a significant role in promoting the consumption of these commodities, which is often linked to social status or personal identity through a concept known as commodity fetishism.