Autonomous consumption facts for kids

Autonomous consumption (also exogenous consumption) is when people are paying for things when they have no income. In other words, it is the consumption expenditure that happens when income levels are zero. Such consumption is considered autonomous of income only when spending on these consumables does not change much income is changed; generally, it may be needed to pay for things that are needed and pay off debt. If income levels are actually zero, this consumption is called dissaving. This is because it is paid for by borrowing or using up savings. Autonomous consumption is different from induced consumption because it does not consistently change with income, whereas induced consumption does. The two are related, for all households, through the consumption function:

$C = c_0 + c_1 Y_d$

where

• C = total consumption,
• c₀ = autonomous consumption (c₀ > 0),
• c₁ = the marginal propensity to consume (the gradient of induced consumption) (0 < c₁ < 1), and
• Y_d = disposable income (income after government taxes, benefits, and transfer payments).

Related pages

• Consumption (economics)
• Consumption function