Autonomous consumption (also exogenous consumption) is the consumption expenditure that occurs when income levels are zero. Such consumption is considered autonomous of income only when expenditure on these
consumables does not vary with changes in income; generally, it may be required to fund necessities and debt obligations. If income levels are actually zero, this consumption counts as
dissaving, because it is financed by
borrowing or using up
savings
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
. Autonomous consumption contrasts with
induced consumption
Induced consumption is the portion of consumption that varies with disposable income. When a change in disposable income “induces” a change in consumption on goods and services, then that changed consumption is called “induced consumption” ...
, in that it does not systematically fluctuate with income, whereas induced consumption does.
The two are related, for all households, through the
consumption function:
:
where
* ''C'' = total consumption,
* ''c
0'' = autonomous consumption (''c
0'' > 0),
* ''c
1'' = the
marginal propensity to consume (the gradient of induced consumption) (0 < ''c
1'' < 1), and
* ''Y
d'' = disposable income (income after government taxes, benefits, and transfer payments).
See also
*
Consumption (economics)
Consumption is the act of using resources to satisfy current needs and wants. It is seen in contrast to investing, which is spending for acquisition of ''future'' income. Consumption is a major concept in economics and is also studied in many o ...
*
Consumption function
*
Dissaving
References
Consumption (macroeconomics)
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