Question

Consumption depends on income, how?​

Answer 1

As the demand for a good depends upon its price, similarly consumption of a community depends upon the level of income. In other words, consumption is a function of income. The consumption function relates the amount of consumption to the level of income. When the income of a community rises, consumption also rises.

The difference between income and consumption is used to define the consumption schedule. When income grows, disposable income rises and thus consumers buy more goods. The result is an increase in the consumption of major purchases and non-essential goods.

The consumption function, or Keynesian consumption function, is an economic formula that represents the functional relationship between total consumption and gross national income.

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