Question

What are the objective factors influencing consumption function?

Answer 1

The objective factors influencing consumption function are:

1. Real Income: Real income shows the purchasing power of an individual and have a direct impact on the consumption function. With the increase in real income, the consumption expenditure also increases but with slow pace which in return contributes towards the savings.

2. Change in the Prices in near future: If the consumer expects that there will be an increase in the prices in near future, then he/she will spend more in the present. This means increase in consumption expenditure and upward shift in the consumption function and vice versa also stands good.

3. Goods Availability in the Market: If the goods are easily available in the market, this indicates that the prices are low which increases the consumption expenditure of the people. Also, if the goods are scarce in nature indicating high prices, this will reduce the consumption expenditure and leads to downward shift in the consumption function.

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