Sunday, 13 September 2015

Consumption of Goods and Services and its effects on economy

Consumption is the 3rd basic economic activity of any economy that follows after Production and Distribution of goods. In some cases, consumption may not necessarily require to go through the intermediary process of distribution, as in the case of a roadside eatery, where food is produced and consumed immediately with no intermediary.

Consumption is the act of using up something. Economically, it is the usage or utilisation of goods and services that are being produced. Whatever goods and services get produced, we use them up for satisfying our needs - let it be our immediate need or some future need. Either way, it is the act of consumption. So, whenever we are eating at some eatery or restaurant, or purchasing some provisions, clothes or other household and electronic goods, all these are counted to be acts of consumption. Similarly, consulting a Doctor, availing hospital services, legal services or salon services - all these acts are also adding to the concept of consumption function.

Types of consumption
Every consumption does not lead to immediate satisfaction of needs.
  • Some portion of the consumption adds to storage and future utilisation of those goods. For example purchasing a bag of rice and other monthly or weekly purchases. These items are consumed throughout the month or week.
  • Some items of consumption are used for longer durations of life like electronic goods, furniture and other equipments which are utilised for years.
  • Many items of goods and resources are procured for using them in manufacturing other end products. This consumption can be termed as industrial consumption. Industrial consumption leads to production of many goods and products that are again utilised by end users or intermediaries. So, it is a chain of consumption.

Limitations of Consumption
There can be some limitations to consumption as it is dependent on other circumstances that are inter linked with it. 
  • An individual's income determines his consumption. As the income is limited in nature for any one person, he can spend only a certain amount of money to purchase things or services. So, his consumption is limited according to his income.
  • Availability of goods also determines or affects consumption function. You may be wanting to buy something, but it is not available in your region or presently not there in stock. So, you are unable to buy it and should look at other options or go without it.
  • Ignorance of knowledge also affects consumption, as you are unaware of some goods in market and so do not think of purchasing them.

Bad effects of Consumption
Consumption, if uncontrolled, can lead to many worst situations of economy.
  • Consumption makes goods and services out of stock sometimes.
  • Consumption can dry up the resources of economy thereby depriving the future generations of their resources.
  • Consumption can make governments depend upon other countries for goods and resources thereby tilting the balance of payments position negatively.
From the above facts, we are able to see that our needs and wants require to be controlled and balanced by curtailing unnecessary consumptions of goods and resources. Then only can our economy prosper.