What is consumption in economics?

Consumption, in economics, the use of goods and services by households. Neoclassical (mainstream) economists generally consider consumption to be the final purpose of economic activity, and thus the level of consumption per person is viewed as a central measure of an economy’s productive success.

How is consumption calculated?

Consumption can be calculated via this formula: Where stands for autonomous consumption which is minimal consumption of household that is achieved always, by either reducing the savings of household or by borrowing money. is marginal propensity to consume where and it reveals how much of household income is spent on consumption.

How do economists understand consumption?

To understand consumption, many economists presented their own versions of consumption functions, such as the relative income hypothesis by James Duesenberry (1949), the permanent income hypothesis by Milton Friedman (1957), and the life-cycle hypothesis by Franco Modigliani and Richard Brumberg (1954).