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Consumption: Meaning, Types and Importance of Consumption

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Meaning of Consumption:

The department of Economics which deals with wants and their satisfaction is known as Consumption.

By consumption we mean the satisfaction of our wants by the use of commodities and services:

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When we use a commodity, we really use its want-satisfying quality or utility. Hence, consumption means using up of utilities. When we take a glass of water to quench our thirst, we are said to consume water. While sitting on chairs in the class-room, the students are consuming the chairs. A person is sick; he calls in a doctor.

He has ‘consumed’ the doctor’s service. Whenever we make use of any commodity or service for the satisfaction of our wants, the act is called consumption. It deals with wealth-using activities of man as distinguished from wealth-getting activities, which are dealt with in Production. Thus consumption deals with the satisfac­tion of wants.

Consumption has also been defined as destruction of utility:

Man cannot create matter nor can he destroy it. Matter is there in the world, it will remain there; man can only change its form. When a man eats, a mango, he does not destroy the matter of which it is composed; he has only changed its form. Formerly, it could satisfy a human want, i.e., it possessed utility; now that want-satisfying power is gone. In other words, man has destroyed its utility in the act of eating it. The mango has been consumed.

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The destruction of utility in consumption may be quick and immediate as in the case of a mango or a glass of milk. Or it may be a prolonged and slow process as in the case of furniture. In both cases, utility or want-satisfying power is being destroyed. But mere destruction of utility does not mean consumption. If a house catches fire and is destroyed, it has not been ‘consumed’ in the economic sense. Consumption implies the satisfaction of a human want.

The emphasis is on the satisfaction of wants rather than on the destruction of utility. If no want has been satisfied, it is not consumption. For practical purposes, consumption means the spending of money income. Milk, food and other goods that we consume cannot be had free we must pay for them. Consumption, thus, involves expenditure of income or wealth-using activity of man.

Types of Consumption:

Consumption is known as direct or final consumption, when the goods satisfy human wants directly and immediately. The goods have reached their final destination, e.g., wearing a shirt or eating a mango or using furniture, in which case the act of consumption is not a single process but is of a continuing nature.

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On the other hand, consumption is called indirect or productive consump­tion when the goods are not meant for final consumption but for producing other goods which will satisfy human wants directly, e.g., using a sewing machine for making clothes.

The use of the instruments of production is a case of indirect or productive consumption. Consumption may be useful or wasteful. When there is destruction by fire or earthquake or by any other natural calamity, the goods are just destroyed and not usefully consumed.

Importance of Consumption:

Modern economists rightly emphasize the importance of consumption. It has already been explainedthat Consumption is the beginning as well as I he end of all economic activity. A man feels a desire and then he makes an effort to satisfy it. When the effort has been made, the result is the satisfaction of the want.

Want is thus the beginning and its satisfaction the end of our economic effort. Consumption is regarded as the be-all and the end-all of all economic activity. In other words, consumption is the beginning as well as the end of all economic activity. It is consumption which gives the initial push to production. Production, thus, is directed and stimulated by consumption.

Not only do the consumers give initial push to production, but their desires govern the volume and direction of all productive activity throughout. If the consumers are satisfied, business prospers and production expands. But if the consumers happen to dislike a commodity or think that its price is too high, its production will sooner or later come to an end. A consumer has been compared to a king, and his sway extends over the entire realm of economic activity.

The existence of wants is the mainspring of all economic activity and then multiplying or expansion is the secret of all economic progress. Multiplication of wants and economic progress go together. Manufacturers try to find out better and more profitable methods to satisfy the consumers. This leads to the discovery of new products and new processes and the invention of new machines. Every economic effort made to satisfy one want creates more wants.

The more the wants are satisfied, the more they increase. “Appetite comes with eating.” Besides, human faculties are exercised in the effort to satisfy human wants. A body of skilled workers is, therefore, built up besides successful businessmen.

The all-pervading influence of consumption can be seen in all branches of Economics. Consumers direct and guide production. It is the intensity of consumers’ desires which determines prices in the market. Consumption thus exerts its influence on exchange also. Without consumption there would have been no exchange.

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Distribution, i.e., the flow of incomes to landlords, workers, capitalists and organizers, is also influenced by the consumption (standard of living) of each of these classes. Standard of living determines their efficiency and on efficiency depends their shares in the national income.

Thus, the importance of consumption cannot be over-emphasized. It is all-pervasive. It affects ill economic activity and contributes to economic progress. It determines the standard of living of the people to the study of which we now turn.

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