Consumption

• Durable goods - provide a flow of services for a number of years (freezer, car, furniture)
• Non-durable goods - Used up at the point of consumption. Require immediate replacement. (food, drinks, cinema visits)
• Determinants of consumption:

  1. Real income
  2. Marginal propensity to consume
  3. income distribution
  4. Interest rates
  5. Availability of credit
  6. Wealth of assets
  7. Unemployment
  8. Confidence
  9. Population size
• Marginal propensity to consume - The amount of spare income that a household plans to spend.
• Marginal Propensity to Consume = change in consumption/change in income