Basic Economic Activities: Consumption of Goods and Services, Limitations and Bad Effects on Economy

Consumption is the 3rd basic economic activity that follows after Production and Distribution of goods.

In some cases, consumption may not necessarily go through the intermediary process of distribution, as in the case of a roadside eatery, where food is produced and consumed immediately with no intermediary.

Consumption is the act of using up something. Economically, it is the usage or utilisation of goods and services that are being produced. 

Whatever goods and services get produced, we use them up to satisfy our needs - let it be our immediate need or some future need. Either way, it is the act of consumption. 

So, whenever we eat food, or purchase groceries, clothes, and other household and electronic goods, all these are counted as acts of consumption. 

Similarly, consulting a Doctor, availing hospital services, legal services, or salon services - all these acts also add to the concept of consumption function.

Types of Consumption

Not every consumption leads to immediate satisfaction of wants.

• A portion of consumption adds to storage and future utilisation of those goods. For example, purchasing a bag of rice and other monthly or weekly purchases. These items are consumed throughout the month or week.
• Some items of consumption are used for longer periods of life, like electronic goods, furniture, and other equipment which are utilised for years.
• Many items of goods and resources are procured for using them in manufacturing other end products. This consumption can be termed as industrial consumption. 
• Industrial consumption leads to production of many goods and products that are again utilised by end users or intermediaries. So, it is a chain of consumption.
• Then, there are the types of physical goods, professional services, and digital content (Spotify, YouTube, OTT platforms, etc), and movies, dramas, TV shows, books, and other multiple forms of consumption.

Limitations of Consumption

There are some limitations to consumption as it is dependent on other circumstances that are interlinked with it. 

• An individual's income determines his consumption. Because income is limited for any one person, he can spend only a certain amount of money to purchase goods or services. So, his consumption is limited by his income.
• The availability of goods also determines or affects the consumption function. You may want to buy something, but it is not available in your region or is not in stock. So, you are unable to buy it and should look at other options or go without it.
• Ignorance of knowledge also affects consumption, as you are unaware of some goods in the market and so do not consider purchasing them.

Bad Effects of Consumption

Consumption, if uncontrolled, can lead to many worst situations in the economy.

• Consumption can leave goods and services out of stock at times.
• Consumption can deplete the economy's resources, thereby depriving future generations of them.
• Consumption can make governments depend on other countries for goods and resources, thereby tilting the balance of payments position negatively.

To sum up:

Consumption is a major indicator of the progress of an economy. But there are some limitations and negative effects of the consumption process. So, it requires much planning and management to develop a country's growth.