What are the determinants of consumption

Consumption expenditure is the value of the consumption goods and services bought by house hold. 

Determinants of consumption:

Two factors affect consumption expenditure such as:

(i) Income factor

(ii) Non-income factor

(i) Income factor:

          (a) Consumption: Consumption function is

                   C = f (Yd)

Where,

C = Consumption

Yd = disposable income

(b) Disposable income:

          Disposable income is the total income that households receive in exchange for supplying the services of factors of production plus transfer from the government minus taxes.

A household can do only two things with its disposable income: 

• Spend it on consumption goods and services. 
• Save it.

(ii) Non-income factor:

          Income is not the only determinant of consumption. A number of non-income factors can also affect consumption. If any of these changes, the entire consumption curve will shift. The most important factors that can cause a shift in the consumption curves are:

          (a) Expected Future income: Other things being equal, the higher a households expected future income, the greater in its current current consumption expenditure.

          (b) Interest rates: The higher the interest rate, the lower is the level of consumption expenditure.

          (c) Degree of patience: The degree of patience varies from are person to another and from one house hold to another.

          (d) Expectations: People who feel their jobs are secure may spend more than those who fear, they will lose their jobs.

          (e) Stage in life: On the average, households that spend the largest part of their disposable income on consumption goods and services are young households with dependent children.

(f) Taxation: As income taxes rise, Yd falls, ceteris paribus. As taxes increase, one would expect less consumption spending for the same amount of income.

(g) Stock of Assets: Changes in the wealth of consumers can also cause shifts in the consumption curve.

          (h) Other factors: 

• High income families have a lower APC than poor families. 
• If public attitudes toward saving and thrift change, the consumption curve will shift. 
•