PSP 3000 CONSUMPTION concept and definition

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1 PSP 3000 CONSUMPTION concept and definition Sem ester 1, 2013/14 Laily Bt. Hj Paim

2 Definition of Consumption Ecologist: what big fish do to little fish Economist: what consumers do with their money Sociologist: what you do to keep up with the joneses

3 Consumption Kyrk (1923, pp 6-7) : Hoyt (1938), pp. 4-6): Cochrane & bell (1956, p.6): Burk (1968, p. 3-13): Broad scope, consumption varies according to time and place, and shaped by the whole environment where the individual is. Consumption includes style, interest and impulse. Use of economic resources by consumers. Emphasis not only G&S offered in the market but include all G&S consumed by the hh from all sources including those produced in the home, received as in-kind income or provided by the government. Decision made by hh in choosing of G&S to be used. Various discipline related to distribution of resources to satisfy wants.

4 Consumption Magrabi (1977): Magrabi (1991, p.5) Macro and micro analysis of household consumption patterns and behavior. Household use of G&S, determinant of wellbeing, human capital building, and main input in the nation s social and economic development. In the consumption process, households need resources. Thus quantity of consumption is determined by types and quantity of available resources, and how they use the resources.

5 CONSUMPTION is a common concept in economics is defined in part by comparison to production. only the final purchase of G&S by individuals constitutes consumption, while other types of expenditure in particular, fixed investment, intermediate consumption and government spending are placed in separate categories. Other economists define consumption much more broadly, as the aggregate of all economic activity that does not lead to the design, production and marketing of G&S (e.g. the selection, adoption, use, disposal and recycling of goods and services). ECONOMICS is the social science that analyzes the production, distribution, and consumption of G&S. Economics aims to explain how economies work and how economic agents interact. dimensions of economics : Micro economics (examines the behavior of basic elements in the economy, including individual markets and agents (such as consumers and firms, buyers and sellers), and macroeconomics (addresses issues affecting an entire economy, including unemployment, inflation, economic growth, and monetary and fiscal policy.)

6 Consumption economics What need to be produced and how resources being used for How produced G&S are distributed among consumers/households/individuals 5 dimensions: Behavioral, Economics, Technical, Temporal and Aggregative

7 Family economics economic theory of production economic theory of the consumer The Economic Organization of the Household to better understand the behavior of individuals and families purchases of market goods and services investments in monetary assets and human capital use of householders time in market work, household work, and other nonmarket activities

8 The economics of the family = new home economics 1930s Family economics and home management had become a separate field of study within home economics Focuses on purchasing behavior, time use, & financial management Home management theory to understand family decision making Multidisciplinary -- integrate economics, sociology, & psychology to study family behavior Margaret Reid s treatise, The Economics of Household Production, dealing extensively with the productive activities carried out by the household

9 The economics of the family = new home economics THEORY BRIEF DESCRIPTION ECONOMIST Economic Theory Of The Consumer Understanding the market demands for consumer goods and services Keynesian macroeconomics Consumer Theory Study of aggregate consumption and saving (Friedman 1957; Modigliani & Brumberg 1954) Human Capital Household Production Human capital is itself an important generator of economic growth Recognition that married females made choices between market work and household work Emphasized the time spent by individuals and families in household production (i.e., Nonmarket work), and formally incorporated the economic theory of production into consumer theory. The use of consumer theory in explanations of fertility The application of consumer theory in explaining the marriage and divorce decisions individuals make (Schultz 1974; Becker 1975). Jacob Mincer s (1963) Gary Becker (1965) (Becker and Lewis 1974). (Becker ; Becker et al. 1977; Manser & Brown 1979; McElroy &Horney 1981).

10 HOUSEHOLD is a group of people who use their collective resources to pursue the same goals. A household, therefore, can be an individual, a family (a group of individuals living together and related by marriage, birth, or adoption), or a group of families or unrelated individuals (so long as they jointly use their resources to pursue the same goals).

11 Relationship Between HH Activities, Goal & Constraint Constraints 1. Resource 2. Technology 3. Legal & Socio-Culture Activities 1. Market work, 2. Household work, 3. Voluntary work, 4. Child care, 5. Leisure Goals maximizing satisfaction/ happiness/ well-being

12 Why household consumption matters The way we consume has both direct and indirect impacts on the environment. Mapping our patterns of consumption is not straightforward The energy, materials and resources we use have direct and indirect impacts on the environment. Every stage of the food production chain - from growing crops, raising livestock or catching fish, to transportation and storage, manufacturing, distribution, purchasing, consumption, and dealing with waste - has environmental effects. Higher disposable incomes, longer distances between home, work and school, more shopping and leisure activities, and deteriorating public transport which is becoming more and more expensive, are all factors in the shift towards the private car in recent decades. The number of households with two or more cars is on the rise.

13 The Importance of Consumption Data 1. To evaluate the wellbeing of the population or sub-group of the population 4. To evaluate the possibility of developing/ preserving resources needed for economic and social development 2. To estimate behavior of the population or group when there are changes in the environment and policy that changes the goods and services availability 3. To identify methods to enhance well-being of the population or groups

14 Production/Consumption Model Input Production Commodity Consumption Well-being Good and services for sale/ gift/ exchange Human Capital

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