Household Consumption Demand

The demand by the households for consumer goods and services is the household consumption demand. It depends on the disposable personal income. As income of the households increases, consumption also increases, but not as much as the increase in income. A part of the increase in income is saved.. This is described as consumption function which can be written as C= f(Y) where C stands consumption, Y = income and ‘f’ represents the functional relation between ‘C’ and ‘Y’. Thus, consumption as direct function of income. Aggregate consumption is also a direct function of aggregate income. This does not mean that no factor other that income can influence consumption. For sake of simplicity, other factors influencing consumption are assumed to be given. Again such factors are of minor importance and accuracy is not affected when we say that consumption is a function of income. In the short-run, consumption is conditioned by the behaviour pattern and is matter of habit. Habits do not change quickly in the short-run. In his theory of income determination, therefore, Keynes concentrated his attention on investment demand.