Definition: Consumption is the spending by households on goods and services to satisfy their wants and needs.
Consumption (C) is spending that contributes to economic activity.
Examples:
– Buying food and drinks
– Purchasing clothes
– Paying for entertainment
– Buying a new car
Formula:
Consumption = Disposable Income – Savings
Example in practice:
Disposable Income = £2,000
Savings = £500
£2,000 – £500 = £1,500
Consumption = £1,500
Types of Consumption:
– Durable Goods: Products that last a long time, such as cars and televisions.
– Non-Durable Goods: Products used quickly, such as food and drinks.
– Services: Activities people pay for, such as haircuts and transport.