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This 5 page paper looks at economic theories of consumption and the way that the level of consumption is determined, including theories of Friedman, Modigliani and Keynes. The bibliography cites 5 sources.
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5 pages (~225 words per page)
File: TS14_TEthecons.rtf
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or shift to lower cost items. However, the two events do not always move in parallel or in proportion, it is often noted that the poorer members of society
will spend proportionately more of their income on consumption compared to members of society that have a higher level of disposable income (Manitsaris, 2002; 132). In all instances there will
be choices made by the consumers determining what they want to consume and how they will consume. Different theories have been developed to explain the way consumption takes place, two
of the most respected are the permanent hypothesis of the consumption function, as seen with Friedmans Permanent Income Hypothesis (PIH), and the life cycle hypothesis consumption function seen in the
theories of Modigliani and Ando. Consumption may be defined as "the act of consuming, as by use, decay, or destruction" (Dictionary.com, 2008). For consumption to take place there is
a plethora of actions which need to take place, suppliers need to make or supply goods and services, the consumers of those goods and services need to know that they
exist, where they can obtain them and make the decision to purchase them; a chain of events that can be highly influenced by external factors as well as the personal
views and beliefs of the consumers The permanent income hypothesis, developed by Milton Friedman, looks at the way consumers choose to make purchases. The basis of the theory is that
consumers will choose the way that they make their expenditure on consumption based not on the exiting level of income, but on the expectation they have concerning their income level
(Manitsaris, 2002; 132). When measuring the level of consumption it is hypothesized that it is made up of two parts, the permanent element and the transitory element, where there
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