Economics Chapter on Consumption Function

Spending on goods and services over a period of time, like buying chocolate, tablets, or a car.

Goods that last a long time and continue providing services, like a car or a television.

Goods used up quickly, like soap powder or ice cream.

The relationship between consumption and the factors that influence it, like income.

The most important factor affecting consumption is how much money we have left after paying our bills and taxes.

The proportion of a change in income that is spent on consumption.

The average amount spent on consumption out of total income.

The theory stating that income is the most important factor influencing consumption.

The rate at which lenders charge borrowers, impacting how much consumers are willing to spend.

Other factors influencing consumption, including consumer confidence, wealth, and the availability of credit.

Changes in household disposable income often lead to corresponding changes in consumer spending patterns. If disposable income rises, people tend to spend more, boosting consumption. Conversely, a decrease in disposable income can lead to a reduction in spending.

The level of confidence consumers have in the economy influences their spending on non-essential goods like holidays and cars. If they anticipate a decline in economic conditions, consumer confidence falls, leading to a decrease in spending on these items.

The overall wealth of a household, including physical assets (homes, cars) and financial assets (cash, stocks), impacts consumption levels. A rise in wealth, such as a stock market surge, can lead to increased spending, while a decrease in wealth often leads to a reduction.

The interest rate on car loans significantly impacts the cost of borrowing and car purchases. Lower interest rates make borrowing more affordable, stimulating car sales. Conversely, higher interest rates increase the cost of borrowing, leading to a potential decline in car sales.

Consumer durables like cars are long-lasting goods meant for repeated use for an extended period. This distinguishes them from perishable or short-lived goods.

The high purchase price of cars often requires financing options, such as loans, to make buying a car feasible. It's unlikely that most people could afford to purchase a car outright.

Higher interest rates make car loans more expensive, leading to higher monthly payments. Consumers might find borrowing less attractive, reducing the demand for new cars and lowering sales.

Lower interest rates make borrowing for car purchases more affordable, leading to increased demand and higher sales. This also increases consumer confidence as it suggests better financial conditions.