Consumption

Consumption is the process in which consumers purchase items on the market. This can be done by purchasing products as you would do every day when you go shopping, or it can also be achieved by purchasing services, such as cleaning or teaching. The amount people can spend directly from their salary is called disposable income. This is calculated by deducting the taxes and charges that you pay from your income. Each person can choose what to spend their disposable income on, and the more they have, the greater their potential consumer expenditure on goods and services, and the more they will be able to save. However, how much people can buy can change if the prices for products get higher or lower. That's why real disposable income exists. This is the amount individuals can choose to spend on goods and services.

Why do people consume goods and services?

People buy goods and services to satisfy their wants and needs. People normally choose to spend their income on products that will provide them with the most satisfaction or utility . An example would be sweets, I like these sweets so I want to eat them. Eating only a few sweets would not maximize their utility, so I go out and buy 100 sweets until I start feeling sick and think I shouldn't have bought them in the first place.

Consumer expenditure patterns change a lot depending on the person because people have different tastes (maybe someone else would buy chocolate instead of sweets). Experience goods and services are goods or services that we have used in the past and have found that we really like them, such as a favourite taxi driver or favourite chocolate. There are also other very important factors that are not income:

Wealth

The more money people have and the more wealthy they feel, the more likely they are to spend money. Private wealth is a part of someone's wealth that is made up of stocks of goods that have a money value. Wealth also includes money saved in bank accounts and other investment schemes that can be easily withdrawn.

Consumer confidence

When people feel safe and confident about their current jobs, this will cause their consumption to increase.

Interest rates

Savings accounts on banks offer interest rates for the money they put in them. If the interest rates are very high, they will be encouraged to save but if the interest rates are very low the will not save so much and they might even borrow money because loan repayments will be less.