Understanding Consumption: Functions, Features and Factors That Affect It

Definition of Consumption – Consumption is an activity that aims to reduce or use up goods and services in the context of fulfilling needs and direct satisfaction.

While Consumer is every user of goods and services available. Anyone can be a consumer, such as a household in a family, the government, as well as an industry or company. See a more detailed explanation of the following consumption process, Reader:

Definition of Consumption

Consumption can be interpreted as an activity carried out with the purpose of consuming use value. In addition, this action is also to meet the needs of both individuals or together. People who do consumption activities can be called a consumer.

Consumption is an activity carried out by humans by using and reducing the usefulness of a good or service that has the purpose of meeting the needs of life and human extinction either slowly or all at once. 

Consumption is an inseparable part of economic activities carried out by humans. A person who performs consumption activities is generally referred to as a consumer, while the products consumed are goods and services offered by producers to consumers. 

Consumption has the main purpose that humans want to obtain, which is to meet the needs of life and satisfaction. In general, consumption activities are carried out to meet the daily needs of traditional society, while for modern society consumption activities are carried out to maintain life as well as to obtain pleasure and self-esteem. 

In a society that is still traditional, generally consumption activities are for the fulfillment of daily life needs. Whereas in modern society, their consumption activities are not only to maintain life, but also for pleasure and self-esteem.

Understanding Consumption According to Experts

In order to better understand what consumption means, the following is the definition of consumption according to experts’ opinions:

  • According to T. Gilarso (2003),
    the concept of consumption is the starting point and the final goal of all economic activities of society.
  • According to Gregory Mankiw (2007)
    the meaning of consumption is the spending of goods and services by households. What is meant by goods are household goods that are durable, including equipment, vehicles, and non-durable goods, such as food and clothing. Expenditure on services referred to are goods that do not have a concrete form, for example education.
  • Samuelson and Nordhaus (2001)
    Consumption is production that is done in order to fulfill the purchase of goods and services to obtain satisfaction as well as to fulfill their needs. Consumption is classified into two, namely routine consumption and temporary consumption. Routine consumption has the meaning of expenditure made for the purchase of goods and services over and over again for many years. While the meaning of temporary consumption is any addition that is unexpected in routine consumption.
  • According to Muhamad Abdul Halim,
    consumption is the production of household consumption that includes the production carried out by households to obtain goods and services as daily necessities in a certain period.

Examples of Consumption Activities in Daily Life

  • A person who buys chicken meat to use as an ingredient in soup or curry.
  • A mother who buys lebaran clothes for her family ahead of Eid.
  • A student who buys shoes to use at school.
  • A man who came to the barber when his hair was felt to be frizzy.
  • An employee who orders an online transportation service to go to work.

Everyone has a consumption pattern that is influenced by various factors around them, in the Muslim Fishing Community Consumption Patterns book below, we will analyze the consumption patterns of the local population so that we can find five factors in it.

Consumption Function

Definition of Consumption is an activity in humans that reduces and uses in the use of goods and services to gradually and simultaneously meet the needs of life and satisfaction of people. Other consumption purposes include:

1. Consuming or Reducing the Use Value of an Item at Once

Things that are included in the classification of reducing the use value of a good and service at once are consumable goods or not goods that cannot last long. That is like food and drink. Because if it is not consumed in time, then the materials will be damaged, stale, and expired so that they no longer have any use value.

2. Decreasing the Use Value of Goods and Services Gradually

Things that are included in the classification of gradually reducing the use value of goods and services are for example the use of goods that do not run out in a short period of time. That is, such as cars, motorbikes, clothes, household furniture such as tables, chairs, wardrobes, etc. To reduce the use value of these items requires a long and gradual time.

3. Fulfillment of Physical and Spiritual Needs

The main purpose of an activity on human consumption is to meet their physical and mental needs. Physical needs such as drinking or eating, sports and others. While doing spiritual needs such as entertainment, reading, worship, books and so on.

This is because by fulfilling our physical and spiritual needs, the burden on our bodies and minds will be lightened. 

4. Satisfy Physical Needs

The purpose is to meet physical needs, such as someone who buys slimming products so that the body remains slim and ideal, or consumes drugs as a form of beauty, and can buy good clothes to look beautiful and elegant to meet physical needs in a direct way.

5. Supporting Production Activities

Human desire to consume certain products and services can encourage production activities. These two activities will mutually benefit all parties involved, namely the party that produces and wants profit and the party that consumes and wants satisfaction.

6. Help Adjust the Formulation of the Minimum Wage Tariff for Workers

The consumption activities carried out by the community are used by the government as a yardstick to adjust the formulation of the minimum wage tariff. In addition, this activity can also be used as a reference for determining tax rates and the national budget ratio.

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7. As the Starting and Ending Point of Economic Activities

Community consumption behavior also occupies an important position in economic activities because it acts as the starting point as well as the end point of the activity. A person who wants a new mobile phone, for example, will buy the mobile phone and start a transaction in the economic activity. Once the mobile phone is owned and the desire is fulfilled, the economic activity automatically ends at that point.

Characteristics of Consumer Goods

  • Consumables have benefits, value and volume that if used will be used up all at once or run out gradually. Consumable or not when an item is consumed can be differentiated into items that can be used up in one use, for example such as: drinks and food. Then items that are used over and over again will wear out or be damaged over time. For example, pants, shirts, shoes, buckets, TVs and others.
  • Consumer goods are used to meet the needs of life. If the use of tractors, hoe, hammer and so on. Not included in consumption activities, because the goods or things are included in production.
  • Consumer goods can meet the needs of life. For example, modes of transportation such as motorbikes used to travel from home to work are included in consumer goods.
  • Consumer goods should be economic goods obtained with sacrifice. For example, food, drink, and clothing are obtained by doing economic transactions in the market. Oxygen or sunlight whose benefits are felt every day are certainly not consumer goods because they are not economic goods.

Characteristics of Consumption Activities

Not everyone can recognize the type of consumptive activity that is done without knowing the characteristics of the activity. One of them is that when doing this economic activity, many people do not realize it. The following is a review of the characteristics of consumptive activities.

1. Done Live

The first characteristic of consumption activities is that these activities can be done directly. With the aim of being able to meet all the needs of the community. In addition to needs, consumptive activities are also carried out to meet community satisfaction.

But basically humans will never feel what is called satisfaction. Where this satisfaction does not have the expected appropriate limit. Because people or society always want to try new things. A small example of this is for example if the community already owns a motorcycle but also wants to own a car. Until when you have a car you don’t use a motorcycle anymore.

2. Consumer Activity Goods

Obtained From Purchases or Sacrifices In order to use consumer goods, you must first make a sacrifice such as purchasing the goods at the store. Like getting bags, clothes, pants, and other things can be found in a store around us.

In addition to the store, these consumables can be obtained from nearby stalls. For consumables that can be obtained from nearby stalls such as ready-made food or drinks. Such as meatballs, tea, chicken noodles, yellow rice, juice, etc. In addition to buying the item, of course you have to prepare the transaction fee. This transaction fee will be used as an exchange value.

3. Goods and Services Used Always Decrease

Next are the goods and services from these consumption activities, if they are used their value will always decrease or run out. Where the goods are like the examples mentioned before, namely books and clothes.

Because the book is always used for writing such as writing school assignments. In addition, clothes also have a reduced value if used.

Because it is true that these clothes do not always last long due to the threads that will slowly become fragile. This is because it is often washed and exposed to direct sunlight. Therefore, these clothes include items whose value will decrease slowly.

4. Having Useful Values

The problem of goods or products from consumption activities has a very beneficial value in meeting the needs of society. The purpose of using this item or product can cause the value of the item to decrease because it is often used. But goods from this consumption activity can be divided into two types.

Where the first type of item is an item whose value will be used up only once. As for examples of this type of goods such as food and drinks. For the second type is the type of goods whose value runs out slowly. In other words that the use of these items is used repeatedly such as clothes and books.

With the development of the era in this world, there are various consumerism issues that develop in society that you can learn in the book Economic Sociology: Capitalism and Consumption in the Era of Post-Modernism Society.

Factors Affecting Consumption

A person will also organize his consumption needs based on the primary and then secondary priorities. For example, basic needs are the needs for food, education, and health. While what is included in the secondary needs are entertainment and recreation.

So when a person’s income experiences a decrease, then the person will cut back on his secondary needs and then prioritize to meet basic consumption needs first. This will suppress the habit of doing excessive consumption patterns. Because basically consumptive behavior will cause negative effects that are not good for a person’s economic condition. While the factors that affect consumption activities include:

  • Income – Income has a great influence on a person’s level of consumption. The bigger a person’s income is, then that person will consume more goods or services, and vice versa.
  • Education Level – Education greatly influences a person’s mindset in doing consumption activities. The higher the level of education of a person, generally the level of consumption will also be higher, and vice versa.
  • Prices of Goods and Services – The price of goods and services can affect a person’s level of consumption. The higher the price of goods and services, the lower the level of consumption, and vice versa.
  • Number of Families – A family with a larger number of members will make the level of consumption larger, and vice versa.
  • Gender – The need for goods or services between men and women is certainly very different. This will also affect the level of consumption.
  • Taste and Style – Some people have better taste and style, both in terms of clothing and other things. This makes their consumption level higher than those who pay less attention to style.
  • Customs and Habits – Customs and customs in a region also affect the consumption level of the community.
  • Interest rate Classical economists consider that consumption is a function of the interest rate. In particular, they believe that interest rates encourage savings and reduce consumption.
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Theory of Consumption

1. Keynes’ Theory of Consumption – John Maynard Keynes (1930)

According to the theory of John Maynard Keynes gives an opinion on the theory of consumption. He said the current amount of consumption is directly related to income. A function or formulation of John Maynard Keynes’s theory to describe the level of consumption at various incomes. Assumptions about consumption theory, namely as follows:

  • The marginal propensity to consume is the amount consumed from the income received is between zero and one. From the assumption, it is explained that when a person’s income increases, the level of consumption & savings also increases.
  • The ratio of consumption to income, or commonly referred to as the tendency to consume on average goes down when income increases because part of the rest of the income is set aside to save. According to Keynes, the proportion of middle to upper economy savings will be different from the lower economy (poor people). The rich usually save a large amount compared to the poor.
  • Income is an important determinant of consumption while interest rates are not so much considered. Based on the theory presented by Keynes, above it can be concluded that a person’s level of consumption is affected by the amount of income.

2. Ernst Engel

Ernst Engel’s theory says that when income levels increase, the proportion of income that will be spent on buying food will decrease or decrease.

This is because Engel’s law mentions that a person’s level of well-being can be said to increase if the ratio of production used for food consumption tends to decrease when compared to production & on the other hand the consumption of production for non-food will increase. Some of the factors that cause the shift in demand for the level of consumption include:

  • The per capita income level of the community
  • The taste and taste of the consumer on the item
  • The price of other goods, especially goods that are complementary and substitute
  • Consumer response to the price of the item.

The grouping of demand for consumer goods consists of Superior good (luxury goods), inferior good (goods with low quality), and normal good (normal goods). The definition of superior good is that the change in the amount of goods demanded is greater than the amount of change in consumer income.

Whereas an inferior good is an item that when the consumer’s income increases, the amount of goods demanded will decrease. And normal good are goods that we often see every day in general such as food, clothes and so on.

There are four conclusions formulated by Ernst Engel in his research or commonly referred to as Engel’s law. Among the conclusions he formulated are: When income increases, the percentage of expenditure for consumption tends to decrease (get smaller).

When production in clothing consumption tends to be fixed and does not depend on the level of income. The percentage of consumption expenditure for relative expenditure is fixed & does not depend on the level of income. When income increases, the percentage of expenditure for education, welfare, recreation, luxury goods, and savings also increases.

3. Life Cycle Consumption Theory

This third theory is a theory developed by Franco Modigliani, Albert Ando and Richrad Blumberg in 1950. The life cycle consumption theory is a theory that explains that economic activity is a lifelong activity. According to this life cycle communication theory, socioeconomic factors of a person or household are considered to greatly influence the consumption pattern of the individual or household.

4. Permanent Income Theory

The second theory of consumption is a theory that argues that income affects a person’s level of consumption. The permanent income referred to in this second theory is the average level of income expected or expected by a person in a long period of time. The theory of permanent income states that a person’s consumption level has a proportional relationship with a person’s permanent income.

5. Theory of Relative Income

The third theory is the theory of relative income. This theory is a theory developed by James Duessenberry in 1949. The theory of relative income pays attention to the psychological aspects of households in the face of income changes.

This theory of relative income discusses the consumption level of society which is influenced by the level of disposable income in the past. It is mainly influenced by the highest level of income ever achieved by a household because current consumption patterns are still influenced by past consumption patterns.

Positive and Negative Effects of Consumption Behavior

Consumption behavior or consumption activities have factors that can affect the difference or high or low level of a person’s consumption. In addition, consumption activities or consumption behavior have positive and negative aspects if seen through how individuals or households consume an item by adhering to the guidelines of economic motives and economic principles . Here is the author’s summary, about the positive and negative aspects of consumption behavior.

1. Positive Impact of Consumption Behavior

There are three positive aspects of consumption behavior, the following three aspects.

  • Can maintain the continuity of the economic cycle for consumers and producers.
  • Consumption behavior can cause economic activities or the economy to become more advanced.
  • Consumption behavior makes the circulation of goods and services faster as a consequence of the actions of sustainable consumption.

Meanwhile, the positive aspect of consumption behavior for producers is that it can increase the production of goods or services that are sold, while the positive aspect of consumption behavior for consumers is the fulfillment of life needs. In addition, the consumptive attitude of consumers can bring demand which then drives the economic growth of a country.

2. Negative impact of consumption behavior

As you know, consumption behavior also has negative aspects, here are three negative aspects of consumption behavior that the author has summarized.

  • Consumptive attitudes and consumption behavior can cause an individual to be unthrifty or wasteful.
  • The nature of being unthrifty or extravagant causes an individual to get stuck in debt.
  • Consumption behavior can decrease a person’s interest or motivation to save, resulting in a decrease in the source of investment funds at the bank.

Those are the three positive and negative aspects of consumption behavior or consumption activities, be wise when you do consumption activities to meet your daily needs and fulfill your desires.

Consumption and consumption activities are different but still related. Consumption is an act done to meet the needs of an individual or group, while consumption activities are part of the household income used by a person to finance the purchase of various goods and services as well as other needs.

Consumption is an inseparable part of economic activities carried out by humans. Both have a connection and are influenced by the same factors, namely social, amount of income or production, taste or style, customs, price of goods and services to be purchased, number of family members and education.

Consumption activities are covered by four theories, namely life cycle consumption theory, permanent income theory, relative income theory, Keynes’ consumption theory. Basically, the four theories of consumption discuss how consumption activities occur in a household or individual that is influenced by various things in accordance with the theory of consumption.

That is the discussion about consumption and consumption activities that includes the meaning, characteristics, influencing factors and theories of consumption that the writer can summarize. Happy learning! Happy reading!