What is Consumption In Economics?

Consumption

What is Consumption?

Consumption refers to the destruction or lessening of the utility of goods and services for satisfying human wants. Therefore, it is said that consumption is the beginning and end of all human activities.

Types of Consumption

Final consumption:

When the consumption is of commodities consumed directly for the satisfaction of human want, it is known as final consumption or direct consumption. Examples: Consumption of food articles, stationery, toys

Productive consumption:

When a commodity is used in the production of another commodity, the consumption is known as productive consumption or indirect consumption. Example: Consumption of fatty acids and caustic soda used in the production of soap production.

Slow consumption:

Consumption of a commodity that gives satisfaction for a longer period of time is regarded as slow consumption. Example: Consumption of consumer durables such as air conditioners and television.

Quick consumption:

The consumption of a commodity whose utility is finished the moment it is consumed by the consumer is known as quick consumption. Example: Consumption of all single-user goods such as a cup of coffee or tea.

Wasteful consumption:

Consumption of a commodity whose utility is lost without satisfying any want is called wasteful consumption. Example: Mishandling of a new glass container or mirror causing it to break.

Capital

It is all those goods that are used for further production of wealth.

Types of Capital

Fixed capital and circulating capital: Capital goods that can be used in the production process, again and again, constitute fixed capital such as machines, furniture, and factory buildings. On the other hand, capital goods that are totally used up in a single round of production constitute circulating capital such as raw materials of production and fuel.

Sunk capital and floating capital: Capital that has already been invested in a manner that it must continue to be used for a particular purpose is called sunk capital. It cannot be transferred to any other use. On the other hand, capital that can be easily transferred between alternative uses is called floating capital.

Money capital and real capital: An amount of money is called money capital if it is used for purchasing capital goods. On the other hand, real capital is real goods and services. One can purchase real capital with the help of money capital to use as capita inputs in the production process.

Material and personal capital: Material capital consists of capital that is in tangible form and can be transferred from one person to another such as stationery and machines. On the other hand, personal capital comprises all those energies, faculties, habits which contribute to making people more efficient such as the art of singing and painting.

Production and consumption capital: Production capital includes all those things which help labor directly in
production such as raw materials and machines. Consumption capital consists of those goods which indirectly help the process of production such as food and clothes to workers.

Production

Production refers to the creation of wealth or utility. It is an activity that results in the creation of goods and services to satisfy human wants. It is a process in which some materials are transformed from one form to another. Examples: Wheat is used for producing bread; wood is used for making furniture.

Every productive activity involves the use of certain basic or primary resources. These resources are known as factors of production. In other words, ‘Anything which helps in the process of production of a commodity or service is called a factor of production.

Factors of production

Land includes not only the surface of the Earth but also all the other gifts of nature. As land is a gift of nature, it does not have any cost of production. It is readily available for any use. However, other agents of production are available at a cost. The supply of land is fixed by nature. It is a basic factor of production because it cannot produce anything by itself. It can be used for alternative uses such as cultivation, dairy or poultry farming, rearing of livestock, the building of houses, and playgrounds.

Labour is the aggregate of all human physical and mental efforts used in the creation of goods and services. Laborers are rewarded suitably in the form of wages for their productive work. Labour can move from one place to another or from one use to another use. Generally, the mobility of labor depends on the education and skill of laborers, the wage difference between different sectors, and social customs. It is possible for any labor to engage itself in different fields of work.

Capital is produced means of production. Capital is produced by humans with the help of natural resources and it is not a gift of nature. It is a means of production which is not consumed directly. It increases the productivity of land and labor.


Organization refers to the services of entrepreneurs who set up production units for the production of goods or services and sell them to consumers. An organization hires laborers, rents land, and borrows capital to organize the whole production process.

Micro and Macro Economics

The term ‘micro’ was derived from the Greek word ‘mikros’ which means ‘small’. Microeconomics studies the economic relationships or economic problems of an individual firm, household, or consumer. It is concerned with the determination of output and price for an individual firm or industry.


The term ‘macro’ is derived from the Greek word ‘macro’ which means large. Macroeconomics studies economic relationships or economic problems of the economy as a whole. It is concerned with the determination of the aggregate output and general price level in the economy as a whole


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