Question

State the subjective factors determining consumption function?

Answer 1

Consumption function, in economics, the relationship between consumer spending and the various factors determining it. At the household or family level, these factors may include income, wealth, expectations about the level and riskiness of future income or wealth, interest rates, age, education, and family size. The consumption function is also influenced by the consumer’s preferences (e.g., patience, or the willingness to delay gratification), by the consumer’s attitude toward risk, and by whether the consumer wishes to leave a bequest (see legacy). The characteristics of consumption functions are important for many questions in both macroeconomics and microeconomics.

Answer 2

The subjective factors determining consumption function can be stated as follows:

Explanation: According to the Keynes' Psychological Law of Consumption, with increase in income, consumption also increases but not exactly at the same level. Increase in consumption level will always be less the increase in income level.

Keynes' Consumption Function can be expressed in the following form:

C = a + bYd

where

C = Consumption Expenditure

Yd = Real Disposable Income

Subjective Factors:

• Provision against contingencies.
• Anticipated relationship between needs and income.
• Appreciation enjoyment.
• Power of autonomy.
• Securing mass working

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