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Consumption (economics)
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Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally consumption is defined by opposition to production. But the precise definition can vary because different schools of economists define production quite differently. According to some economists, only the final purchase of goods and services constitutes consumption, and every other commercial activity is some form of production.
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Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally consumption is defined by opposition to production. But the precise definition can vary because different schools of economists define production quite differently. According to some economists, only the final purchase of goods and services constitutes consumption, and every other commercial activity is some form of production. 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").
Likewise, consumption can be measured by a variety of different metrics. The total consumer spending in an economy is generally calculated using the consumption function, a metric devised by John Maynard Keynes, which simply takes the aggregate disposable income and multiplies it by a "marginal propensity to consume". This metric essentially defines consumption as the part of disposable income that does not go into savings. But disposable income in turn can be defined in a number of ways - e.g. to include borrowed funds or expenditures from savings.
History
John Maynard Keynes developed idea of the consumption function, which sees a consumption as consisting of two main parts:
- Induced consumption refers to increases in consumer spending occurring as disposable income rises. Increases in consumption follow the famous marginal propensity to consume. An increase in disposable income leads to an increase in consumption, moving along the consumption function in a graph.
- Autonomous consumption refers to consumption spending done as part of long-term plans for the future (smoothing out income fluctuations, providing for retirement and other expected future events, etc.) and as a result of habits and contractual commitments. Changes in plans, expectations, habits, etc. leads to shifts of the consumption function in a graph.
Often, as in the permanent income hypothesis, the word "consumption" refers instead to the benefit received from consumer goods and services (as opposed to the amount spent on such products).
Sociological Studies of Consumption
Studies of consumption investigate how and why society and individuals consume goods and services, and how this affects society and human relationships. Contemporary studies focus on meanings of goods, role of consumption in identity making, and the 'consumer' society (e.g. Douglas et al). Traditionally, consumption was seen as rather unimportant compared to production, and the political and economic issues surrounding it. With the development of a consumer society, increasing consumer power in the market place, the growth in marketing, advertising, sophisticated consumers, ethical consumption etc, it is recognised as central to modern life. Sociology of consumption has moved well beyond Veblen's early work on 'conspicuous' consumption. Current theories investigate the role of economic and cultural factors in constraining consumption (Bourdieu), as development of an approach that sees consumers as 'victims' of producers and their social situation. A counter theory highlights the subversive aspects of consumption, with consumers buying and using goods, places etc in ways unintended by the producers. Examples include city squares turned to skateboard parks, and music sharing on the internet.
Studies of consumption come from a variety of backgrounds. Consumer studies attempt to help marketing. User research aims to improve product design. Feminist studies highlight the importance of women as consumers, and particularly the role of the domestic arena in consumption. Media studies try to understand the consumption of media products such as television and video games. Cultural Studies is interested in the role of material goods in culture (e.g. Mackay) Critical Theory is an important influence on contemporary studies, as consumption is central to contemporary culture. Domestication theory focuses on mass market technologies.
Studying consumption can be done through traditional survey methods, or various ethnographic techniques. Consumption studies are difficult because they involve investigating everyday life situations, bringing research into the private domain, rather than formalised settings such as the workplace.
See also
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