MEANING AND DEFINITION OF CONSUMPTION
Consumption is a word, which is used in everyday usage. In common usage, consumption means the destruction of utility.
Example: If a particular quantity of wheat is consumed in a family or burnt by fire in a godown, it means consumption because the wheat exists no longer in both cases. But in economics, consumption means the destruction of utility for the satisfaction of wants only. From this view, wheat consumed in a family is consumption but the wheat burnt by fire is not consumed because it has not been used for the satisfaction of human wants.
The term 'Consumption' has been defined as under:-
"Consumption is the direct and final use of goods and services in satisfying the wants of human beings."
Prof. Mayers
"Consumption means the use of economic services and individual services for the satisfaction of human wants."
Prof. Ely
"Consumption in the economic sense of the term may be defined as the application of wealth for the satisfaction of wants."
Prof. Penson
Thus, consumption is the final use of goods and services for the satisfaction of human wants. It involves the destruction of utility of economic goods and services to satisfy human wants.
ESSENTIAL ELEMENTS OF CONSUMPTION
Satisfaction of Human Wants-
Consumption means the final use of goods and services for the satisfaction of human wants. Therefore, consumption should aim at satisfying human wants.
Satisfaction of Wants Should be Direct-
Consumption should satisfy human wants directly. Indirect use of goods and services cannot be regarded as consumption.
Example: Tea is made up of sugar, milk, water, tea-leaf, and gas. The use of tea is consumption but the use of sugar, milk, etc., is not consumption.
Consumption Destructs Utility and not the Commodity-
Consumption involves the destruction of utility only and not the destruction of the commodity itself. A man can neither construct nor destruct a commodity.
Consumption may be Immediate as well as Gradual- Some are the commodities that can be used only for one time such as flour, ghee, pulses, sugar, gas, etc., some commodities can be used again and again in the process of consumption such as furniture, cycle, T.V., etc. Thus consumption may be immediate as well as gradual.
IMPORTANCE OF CONSUMPTION
Importance of consumption may broadly be divided in two
(I) Theoretical importance
(II) Practical importance.
Theoretical Importance
Consumption Determines the Level of Income and Employment-
Consumption determines effective demand which, in turn, determines the level of production. Level of income and employment depends upon the level of production activities. Thus, consumption determines the level of income and employment.
Consumption is the Basis of Production, Exchange, and Distribution.
Consumption determines goods and services that should be produced and also the quantity in which these goods and services should be produced. It helps in the determination of the price of these goods and services. How should goods and services be distributed, is also determined by consumption.
Consumption Indicates Economic Welfare-
The level of consumption is the indicator as well as a barometer of the standard of living of people. An increase in the level of consumption may well be regarded as an increase in the level of economic welfare of a country.
Practical Importance
Importance for Government-
Nature, form and level of consumption help in determining the economic and social policies of the Government. It helps the government in determining its monetary and fiscal policies also.
Importance for Producers and Sellers-
Consumption is a base of production. Quantity, quality, and scheduling of production are determined on the basis of production.
Importance for Social Reference-
Consumption is very important for social reforms. On the basis of trends of consumption, social reformers frame their policies and strategies to control the use of harmful goods and services.
