The consumption expenditure is the final annual cost, which households spend on products and services. This measurement is used in GDP calculation to define the growth or decline in national economics.
Explanation:
Household consumption is the purchase of personal goods, that is, the purchase of food, clothing, footwear, furniture, cultural and household items, cars, the costs of socio-cultural, and domestic services.
Consumer spending can be classified differently, for example, divided into products and services. The economic theory divides consumer spending into the following groups:
- expenditures for long-term goods that serve more than one year: cars, personal computers, tape recorders, televisions, refrigerators, etc.
- payments on short-term products — those that serve less than one year: food and most items of clothing.
- costs of services: doctor, hairdresser, educational institutions, culture, etc.
It is useful to familiarize yourself with some of the patterns inherent in a market economy. Household consumption expenditures are related to demand and such phenomena as income effect, substitution effect, consumer surplus, utility maximization. If a household’s monetary income is sustainable, then increasing its price is equivalent to reducing its real income or purchasing power. More specifically, the effect of income means the impact of a price change on the real income of consumers.
If the price goes up and cash income remains constant, then real household income decreases, and they buy fewer goods. On the contrary, as household prices fall, real household incomes will continue to grow with the sustainability of their salaries. Such dependence on macro- and micro-economic levels represents the significance of the consumption expenditures in national economics and the GDP calculations.