## Consumption

**i. Planned Consumption Expenditure (C)**

This is made up of planned expenditure by households on durable and non-durable goods and services such as household expenditure on plantain, cars, shoes, and so on.

**ii. Consumption Function:**

A consumption function, in its simplest form, expresses the relation of consumption to disposable income (defined as gross income minus tax), holding non-income determinants of consumption constant. This function is represented as follows:

C = a + bY_{d} a > 0; 0 < b < 1

Where C = consumption expenditure; and

Y_{d} = disposable income

The consumption function in this form is a linear function (a straight line) where:

“a” measures consumption expenditure when income is zero (Y_{d} = 0). This is called autonomous consumption. It is independent of the level of disposable income.

“bY_{d}” is income induced consumption expenditure. This is the proportion of consumption expenditure that is dependent on the level of disposable income.

“b” measures the extent of a change in consumption expenditure with respect to a change in disposable income. It is the slope of the consumption function. It is called the Marginal Propensity to Consume (MPC).

Figure 11.2 depicts the consumption function. “a” is non- income induced consumption expenditure or the autonomous consumption expenditure and the line marked C= a + bY_{d} is the consumption function. The slope of the consumption function is ∆C/∆Y_{d} and is equal to “b”.

Fig. 11.2: Consumption Function