Consumption function shows the functional relationship between two variables – income and consumption. Where consumption depends upon the level of income. Hi friends, in today’s article we are going to know about the Factors affecting Consumption Function. So let’s discuss in details.
Factors affecting Consumption Function
There are a number of factors both subjective and objective which determine the position of consumption function. The factors or causes of shifts in consumption function are as follows –
Subjective Factors
• Precaution – This is the motive to build some fund to faces certain unforeseen contingencies such as illness, accident, unemployment or untimely death.
• Calculation – This is the motive to save more for having a specified interest, income in future.
• Enterprise – This is the motive to set up new enterprise.
• Independence – This is the motive to secure financial independence.
• Miserliness – This is the motive to save more to satisfy the habitual miserly urge.
Objective Factors
The objective factors are external to economic system. The undergo rapid changes and bring market in the consumption function. The main objective factors are given below –
• Real Income – Real income is the basic factor which determines community’s propensity to consume. When real income of the community increases, consumption expenditure also increases but by a smaller amount. The consumption function shifts upward.
• Distribution Wealth – If there is unequal distribution of wealth in a country, the consumption function will also be unequal. People with low income group have high propensity to consume. An equal distribution of wealth raises the propensity to consume.
Conclusion
So friends, this was the concept of Factors affecting Consumption Function. Hope you get the full details about it and hope you like this article.
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