Concept of Consumption and Saving Essay Example

a savings account, all it takes is a visit to the bank. While in the case of investments, it can take form in many ways. Buying a shop lot in a town and letting it out for rent is also considered investing.

Buying shares in the stock market is also another form of investment. Savings can be considered as the cash that is kept in the bank or any other financial organization that provides the facility. This saving is done for a long time but the growth rate of the cash is very low. On the contrary, investment provides the growth opportunity to the cash.

CONCEPT OF CONSUMPTION

Ever since Adam Smith's celebrated dictum that consumption is the sole end and purpose of production, the consumption concept has played a significant role in is basically the spending of cash in order to obtain or receive satisfaction.

Consumption is a fairly common concept in economics, and it gives rise to derived concepts such as consumer debt. As a whole, consumption is presumed to be the opposite of production. This assumption is pretty obvious because of the fact that production means the process to manufacture while consumption will be at the end of the cycle. Still, the precise definition for the term consumption may vary because different groups of economists define production quite differently.

But, referring to the mainstream economists, only the final purchase of goods and services by individuals constitutes consumption, while other types of expenditure such as fixed investment or government spending (taxes and fines), are placed in a different category, apart from consumption. Meanwhile, there are also economist who defines consumption in a much

broader scope. Whereby they say that consumption aggregates all economic activities that do not entail the design, production and marketing of goods and services. For example, the selection, adoption, use, disposal, and recycling of goods and services.

Moreover, consumers can also be measured in a variety of different metrics such as energy and energy in economics. John Maynard Keynes developed a function, known as the consumption function. This function is a mathematical function that is used to calculate the total consumer spending in an economy. John Maynard Keynes's theory merely expresses consumption as a function of the aggregate disposable income. Basically, this metric essentially defines consumption as the part of income that is disposable and does not go into saving.

But disposable income in turn can be defined in a number of ways - for example, to nclude borrowed funds or expenditures from savings. Traditionally, consumption was seen as rather unimportant compared to production, and the political and economic issues surrounding it. With the development of a consumer society, increasing consumer power in the marketplace, the growth in marketing, advertising, sophisticated consumers, ethical consumption etc, it is recognised as central to modern life. People in different positions in respect to income have systematically different structures of consumption.

The rich spend more for each chapter in bsolute terms, but they spend a lower percentage in income for food and other basic needs. The percentage values of an aggregation over all the households in a country can thus be used for Judging income distribution and the development level of the society. The rich have both higher levels of consumption and savings. In differentiated product markets, the rich

can usually buy better goods than the poor. This happens also because they tend to use different decision-making rules. In other words, consumption depends on social groups and their behaviours, as well as their proneness to advertising.