Consumption

Abstract

Consumption involves consumer behavior of how people make choice in selecting to enjoy bundle with specific quantities of one or more goods and services within a period. Economists use an often-used word “demand” to term peoples’ choices when consuming a good, and model the choices beginning with an account of consumer preferences over commodity bundles. Goods are categorized as normal or inferior by the responses of consumers’ demands to the income changes, and economists break the effect of price changes on demands into two parts, namely, substitution and income effects. People have their own time preference over the consumptions in different periods. Two cases are illustrated: one is that current consumptions are the substitutes for future consumptions, and the other is that the pleasure of current consumption is enhanced by the past consumptions. Decisions people make regarding consumptions not only occur in the economic situations with certainty but also with uncertainty. Most of economists nail uncertainty down as risk, and it refers to situations, in which consumers can list all possible outcomes and subjectively know the likelihood of each occurring. The ways that people rank plans of consumption under uncertainty are similar to the ones that people have preferences over consumption bundles under certainty. An individual may be not only concerned with his/her own self, but also be connected to the selves of the others, and hence his/her demand for some goods could depend on the demands on the part of other consumers. In the case of positive network externalities, the interdependence preferences boost the demand for a good or service, but in the case of negative ones they reduce the consumption.