consumption theory

WELCOME TO

THE PRESENTATION

Course No: Soc 2105

Course Title: Economy and Society

Presented By:

Alok Roy

ID- 151646

2nd Year 1st Term

Sociology Discipline

Khulna University

Khulna

A Presentation On….

“consumption”

Presentation outline1. Meaning of consumption.

2. Etymology.

3. Definition of consumption.

4. Types of consumption.

5. Importance of consumption.

6. Variables of consumption.

7. Theory of Alfred Marshall.

8. Theory of Thorstein Veblen.

9. Theory of Keynes.

10. Theory of Norrish.

11. Determinants of consumption.

12. Social Structure and Consumption.

13. How consumption related with Sociology.

14. References.

Consumption

Consumption is a major concept in economics and also

studied by many other social science. Economists are

particularly interested in the relationship between

consumption and income, as modeled with the

consumption function.

Meaning of consumption

Consumption is the process in which the substance of a

thing is completely destroyed, used up, or incorporated or

transformed into something else. Consumption of goods

and services is the amount of them used in a particular

time period.

(www. Bussinessdictionary.com)

Etymology

The term consumption derived from old French word,

“consumpcion” and Latin word, “consumptionem”

(www.etymoline.com)

Definition of consumption

Different schools of economists define consumption

differently.

According to Encarta Encyclopedia,

“The purchase and use

of goods and services by consumers or the quantity of goods

and services purchased”.

According to David Jary and Julia Jary,

“The process in

which goods or services are used to satisfy economic needs”.

Definition of consumption

cont’d

According to Merriam- Webster Learner’s Dictionary,

“The act of

eating or drinking something: the use of something: use by a

particular group of people”.

In simple words, consumption is defined as destruction of that

utility through use. Consumption means demand for consumer

goods and services by households.

Types of consumption

Direct or final consumption:

Consumption is known as direct or final consumption,

when the goods satisfy human wants directly and

immediately. The goods have reached their final

destination, e.g. wearing a shirt or eating a mango.

Types of consumption

Indirect or productive:

Consumption is called indirect or productive consumption

when the goods are not meant for final consumption but

for producing other goods which will satisfy human wants

directly, e.g. using a sewing machine for making cloths.

cont’d

Importance of consumption

Modern economists emphasize much on it-

Beginning of all economic activities: Consumption is the

beginning of all human activities consumption also means the

satisfaction of human wants.

End of all economic activities: Consumption is not only the

beginning of all economic activities it is also the end of all

economic activities.

Index of standard of living: The consumption pattern of a

person; i.e. what he eats, what he wears etc. give us the

knowledge of the standard of living of the person.

Importance of consumption

cont’d

Consumption is the source of production: Production increase with

the consumption. It is consumption of goods that necessities their

production.

Importance in economic theory: The study of consumption has

contributed much in the formulation of certain economic principles.

Importance for the government: The government formulates its

economic policies on the basis of the consumption habits of the people.

Importance in income and employment: Consumption plays an

important role in the determination of income, output and employment

in a country.

(www.yourarticlelibary.com /Smriti Chand)

Variables of consumption

Sociological and other variables impinge on different

kinds of consumption.

1.Sex: Women consume less than men.

2.Age: Children consume less than adults.

3.Ecology: Rural populations consume more than urban

populations, products differentiation is greater in urban

areas.

Variables of consumptioncont’d

4. Economic resources:

Those near the starvation level spend almost all

their increments of income on food; above this

level, “Engel’s Law” takes effect and with

increments of income a smaller proportion is spent

on food; then in the upper reaches, where sedentary

occupations dominate, the absolute amount spent for

food may actually decrease in some cases.

Variables of consumption

cont’d

5.Occupational status of family members:

As the income of family increases at middle-income

levels, the proportion of income spent on food

diminishes; but if this increase results from the fact that a

wife takes a job, the proportion spent on food may

increase because of reliance on more service costs on

food (for example, restaurant meals and frozen foods).

Variables of consumption

cont’d

6. Social class:

In our society who belong to upper class consume more than the

lower class people.

7. Income:

People who have higher income consume more than lower income

people.

8. Physical fitness:

Physically fit people consume more than the other people.

Variables of consumption

cont’d

9. Power:

More powerful people in our society consume more than other’s.

10. Social status:

People who have higher social status consume more than the peoplewho have lower status.

11. Family:

Extended family consume more than nuclear family.

12. Political power:

Politically powerful people consume more than the powerlesspeople.

Theories of

consumption

The Theory of Alfred Marshall

on

consumption

Alfred Marshall:A Brief Biological Sketch

Alfred Marshall (26 July 1842- 13 July 1924) was one of themost influential economist of his time. He was born in London.His father was a bank cashier and a devout Evangelical. He waseducated at the Merchant Taylor’s School and St. John’s College,Cambridge.

Major books:

The Economics of Industry- 1879.

Principle’s of Economics- 1890.

Industry and Trade- 1919.

Money, Credit and Commerce- 1923.

(Wikipedia,2016)

Theory of Alfred Marshall on

consumption

Marshall indicated that many human wants are structured in

relation to cultural and social patterns. His connection between

wants and activities led to this insight. Marshall recognized the

existence of certain necessaries for subsistence and for different

occupation.

Limitations:

In his theory something besides residual wants, determined

demand, wants depend in part on the type of civilization in which

the economy is embedded.

Theory of Thorstein Veblen

on

Consumption

Thorstein Veblen:A Brief Biological Sketch

Thorstein Bunde Veblen (July 30, 1857- August 03,1929) was a

Norwegian- American economist and sociologists. He was famous as a witty critic of

capitalism. He was the fourth of twelve children in the Veblen family.

Books:

The theory of the Leisure Class- 1899.

The theory of Business Enterprise- 1904.

Imperical Germany and the Industrial revolution- 1915.

The Engineers and the Priu System- 1921.

The vested interests and the common man- 1919.

(Wikipedia,2016)

Theory of Thorstein Veblen

cont’d

In Thorstein Veblen’s theory of conspicuous consumption, that

something's besides randomly assorted individual wants

determined the nature of demand.

Veblen argued choose their patterns of expenditure to underline,

symbolize and fortify their class position vis-à-vis the rest of the

community.

Again, this marks the introduction of social variable into the

concept of demand.

Theory of John Maynard Keyens

on

Consumption

Keynes:A Brief Biological Sketch

John Maynard Keyens (5 June, 1883- 21April, 1946) was an Englisheconomist whose ideas fundamentally changed the theory and practice ofmacro- economics and the economic policies of govt. John Maynard Keyneswas born in Cambridge, England to a upper- middle class family. His fatherwas an economist and a lecturer in Moral Sciences at the University ofCambridge and his mother was a local social reformer.

Contribution:

Macroeconomics, Keynesian economics, Liquidity preference, Spendingmultiplier.

Books:

1913- Indian Currency and Finance.

1914- Luwig Von Mises’s Theori des Gelds.

1919- The Economic Consequences of the Peace.

(Wikipedia, 2016)

Theory of Keynes

cont’d

The work of Keynes brought into focus the balance between

consumption and savings. His theory of consumption and

savings rests on what he called a “Fundamental

Psychological Law” whereby when (any modern

communities) real income is increased (the community) will

not absolute amount must be saved.

[General Theory of Employment,

Interest and Money (New York; Hareaurt Brace,1936)

p.97]

Theory of Keynes

cont’d

A serious challenge to the Keynesian postulate is found in

Duesenberry’s theory of consumption. Basing his case on

general sociological and economic evidence, he challenged two

of Keynes’s assumptions:

1.That every individual’s consumption behavior is independent

of every other individual and

2. That people who have recently fallen from a higher income

level to a given income will spend and save in the same manner

as people who have risen from a lower income level to the same

level.

Theory of Keynes

cont’d

Limitations:

Keynes theory can’t brings many structural variables to

bear on consumption.

While Keynes admitted that factor other than this may

affect savings.

He did not give them a formal places in this theory.

Theory of Ronald George Wreyford Norrish

on

Consumption

Norrish: A Brief Biological Sketch

Ronald George Wreyford Norrish (9 November,

1897- 7 June 1978) was a British Chemist who was

awarded the Nobel Prize in Chemistry in 1967.

Norrish was born in Cambridge and was educated at

the Perse School and Emmanuel College, Cambridge.

He was a former student of Eric Rideal.

(source: Wikipedia, 2016)

Theory of Norrish

cont’d

From time to time economists have expressed dissatisfaction

with deductive theories of diminishing marginal utility and

indifference curve analysis. Norrish for instance argued that

consumption theory should not be based on diminishing

marginal utility or any alternative of that theory. Rather she

distinguished among short term purchase according to type of

expenditure-

1. Those expenditures that involve no calculation such as legal

obligations (e.g. rent), forced savings for Chrismas clubs,

income taxes, insurance health plans and so on.

Theory of Norrish

cont’d2. Areas in which careful weighing occurs as in investment incertain stocks on the exchange.

3. A “dynamic” residual in which the purchaser makes sporadicexperimental purchases.

Modigliani, Blumberg and Ando held that consumption is afunction of current and expected income and assets. Again theexpected income is influenced by such factors as age of retirementand the age distribution of the population.

Limitations:

The sociological variables these theory incorporate are limited togross demographic indeed.

Determinants of consumption

Combining all the theories of consumption, we can

conclude that consumption depends on-

- Current income

- Expected future income

- Wealth

- Interest rate

(www.csub.com)

Social Structure and Consumption

In various sociological dimensions (social class, race)

are differently involved in social structure. This

structure impinge on there spending patterns-

At a gross level (for instance saving spending ratio).

At a detail level (the kinds of consumer items used

to symbolize sex roles).

Thus we would note sex, marital status, age and

position in the class structure.

Sociological and other variables impinge on different

kinds of consumption (sex, age, ecology, economic

resources).

How consumption related with

Sociology

Consumption is a sub- field of sociology. Within this sub-

field, Sociologists see consumption as-

- central to daily life

- identity

- social order in contemporary societies.

Due to its centrality to social life sociologists recognize

fundamental and consequential relationships between

consumption and economic and political systems and to

social categorization group membership, identity,

stratification and social status.

How consumption related with

Sociologycont’d

Consumption is thus interested with issues of-

- power and inequality

- is central to social process

- situated within the sociological debate surrounding

structure and agency.

- and a phenomena that connects the micro- interactions

of everyday life to larger- scale social patterns and trends.

(www.sociology.about.com)

How consumption related with Sociology

cont’d

The sociology of consumption also concern about the-

- Questions of labor

- Industry

- Production unit

- Social, legal or economic institutions

- Technology

- Social class

However in the last few decades researchers have increasingly situated practicesof consumption for understanding broader, social and cultural change, impactingon the way sociologists have conceptualized such diverse areas of social changeas cultural and economic inequality, urban and spatial development, identity andselfhood, gender relations and performativity, media and advertising.

(www.oxfordbibliographies.com)

References

1. www. Bussinessdictionary.com/consumption/2016.

2. www.etymoline.com/meaning of consumption/2016.

3. Collins Dictionary Dictionary of Sociology by David Jaryand Julia Jary, 2000. p- 110.

4. www.yourarticlelibary.com /Smriti Chand/economics article/2016.

5. General Theory of Employment, Interest and Money (New York; Hareaurt Brace,1936) p.97

6. www.oxfordbibliographies.com

7. www.sociology.about.com/consumption theories.

8. www.csub.com/ about consumption/.

9. Wikipedia the free encyclopedia, 2016.

Thank You.