TASK 1 CONSUMPTION THEORY

TASK 1

( Consumption Theory )

1. What is consumption theory?

In theory consumption keynes stated that the amount consumption expenditure ( c ) based on the size income ( y ) the people .From our analysis expenditure put forward by keynes the there are two the important thing :

·         MPC < APC, and

·         the APC the rich smaller than the APC the poor .

2.  Who are the actors?

·  Household Sector : This sector includes the entire, wants-and-needs-satisfying, eating, breathing, consuming population of the economy. In a word, it includes everyone, all consumers, all people, and every member of society. Pollyanna Pumpernickel, a hardworking mother of two, is a representative member of the household sector. So too is Winston Smythe Kennsington III, an affluent corporate executive.

·  Business Sector : This sector contains the private, profit-seeking firms in the economy that combine scarce resources into the production of wants-and-needs satisfying goods and services. It includes proprietorships, partnerships, and corporations. OmniConglomerate, Inc., a multi-billion dollar, multi-national, mega corporation, exemplifies a member of the business sector. However, Manny Mustard, a proprietor who owns and operates a little sandwich shop is also part of the business sector.

·  Government Sector : This sector includes all government entities that impose resource allocation decisions, that might not be made otherwise, on the rest of the economy. It consists of the three primary levels of federal, state, and local government responsible for passing and enforcing laws. Of course, all branches and agencies of the U.S. Federal Government--Congress, Department of Transportation, Environmental Protection Agency, etc.--is part of the government sector. So too is the Shady Valley City Council and the local Shady Valley Board of Education included in the government sector.

·  Foreign Sector : This sector is comprised of everyone and everything outside the political boundaries of the domestic economy. It includes households, businesses, and governments in other countries. The foreign sector of the domestic United States economy includes the governments of other nations such as the Republic of Northwest Queoldiolia. It also includes citizens and businesses in other nations, such as Horst Duncanstein, a citizen of Northwest Queoldiolia, and Quedoldiolian Sundial Company, also located in Northwest

3. Why is consumptions related with income?

The income effect is a phenomenon observed through changes in purchasing power. It reveals the change in quantity demanded brought by a change in real income. The figure 1 on the left shows the consumption patterns of the consumer of two goods X¹ and X², the prices of which are p₁ and p₂ respectively. The initial bundle X^*, is the bundle which is chosen by the consumer on the budget line B₁. An increase in the money income of the consumer, with p₁ and p₂ constant, will shift the budget line outward parallel to itself.

In the figure, this means that the change in the money income of the consumer will shift the budget line B1 outward parallel to itself to B2 where the bundle X^' bundle will be chosen. Again, an increase in the money income of the consumer will push the budget line B2 outward parallel to itself to B3 where the bundle X^" will be the bundle which will be chosen. Thus, it can be said that, with variations in income of the consumers and with the prices held constant the income–consumption curve can be traced out as the set of optimal points.

4. How can Income is major factors for consumptions ?

Income is by far the must important factor that determines a community’s propensity to consume.

As its income rises or falls, consumption spending also rises and falls. The figures given afore show changes in consumption caused by an increase in income (with no change in the propensity to consume) and changes in consumption caused by a change in the propensity to consume (with no change in income).

REFERENCE

http://mobile.sederet.com/translate.php?q=hopeless&lang=en_id&var=90f17b6961a5d7257b59830bf22de55b

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=macroeconomic+sectors             

https://en.wikipedia.org/wiki/Income%E2%80%93consumption_curve

http://www.economicsdiscussion.net/consumption-function/12-objective-factors-affecting-consumption-keynes-psychological-law/14469