CONCEPT OF CONSUMPTION. Definition of the concept of consumption: first what consumption? Does consumption has anything to do with demand and supply? So lets define it in a simple way.

What is the concept of consumption? it may be defined as the total quantity of goods and services purchased and used by consumers during a specified period of time. this is also described as expenditure on goods and services at a given period of time. It is the expression of total consumer demand. CONSUMPTIONconsumer theory

Types of consumption

Here are few list of the different type of consumption

  1. Durable goods: This involves consumption expenditure on certain items which are furniture and machine.
    1. Non – durable goods: This involves expenditure on goods that are not durable in nature, e.g. food, clothing and water.
    2. Services: This involves consumption expenditure on general services, e.g. legal fees, entertainment fees and educational fees.


Savings: The level of savings influences consumption. High savings tend to reduce the level of consumption.

Level of income: The higher the income the higher the level of consumption.

Availability of credit facilities: Availability of credit facilities either to individuals or firms tends to increase the level of consumptions.

Income distribution: Equitable distribution of national income will increase the disposable income of individuals thereby increasing the level of consunption.

Possession of assets: Revenue generated by assets increases the income of their owners and this tends to raise the level of consumption

Rate of taxation: High taxation reduces the income of people and this reduces the level of consumptions

Interest rate: If the interest rate received is high, it will generally increase income, thereby resulting in a rise in the level of consunption.

Profit earned: High profits earned either by individuals or firms increase income, thereby resulting in a rise in the level of consumptions.

Future expectation: Expectation of rise in the prices of goods and services will lead to a rise in the level of consumptions expenditure and vice versa.

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Opportunity cost by definition is an expression of cost in terms of forgone alternatives. It is the satisfaction of one’s want at the expense of another want. It refers to the wants that are unsatisfied in order to satisfy another pressing need. The production possibility curve (PPC) is directly connected with opportunity cost. The PPC involves sacrifice in production of one commodity in order to another one can be produced. Once more resources are allocated to the production a commodity, less resources would be allocation to the production of others (because res are scarce). The downward slope of the illustrates that there is an opportunity involved in the production of more commodity. This cost is measured in I quantity of another commodity for sacrificed.

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