The Difference Between Induced Consumption and Autonomous Consumption

Autonomous Consumption vs. Induced Consumption: An Overview

Those with little to no income still have to spend money on living expenses, which is considered autonomous consumption by economists because consumers in this predicament have no choice but to dedicate all their income to these expenses.

Consumers who have and spend disposable income on non-essential items produce induced consumption. These consumers have money to spend or invest, even after all basic needs are met, and all necessary bills are paid.

Key Takeaways

• Autonomous consumption is the expenses consumers must incur regardless of income, such as food, shelter, and clothing.
• Induced consumption is spending that varies based on consumers’ disposable income.
• When consumers experience an increase in disposable income, the amount of induced consumption will likely grow.
• When consumers experience a decrease in disposable income, the amount of induced consumption will likely shrink.

Autonomous Consumption

Autonomous consumption is defined as expenditures taking place when disposable income levels are at zero. This consumption is typically consumer living necessities, but it can cause them to borrow money or withdraw from savings accounts.

Autonomous consumption occurs most often when people don’t have the income they need for necessities such as food, shelter, utilities, health care, and transportation.

Consumers in this predicament are forced to spend all of their income, and possibly money they don’t have, just for necessities. As a result, they end up in a spiral of debt and may have to resort to other means, such as high-interest payday loans, to cover their basic bills for shelter or food.

Note

Autonomous consumption can go up or down depending on foreseen or unforeseen events that may limit or take away income.

Induced Consumption

Induced consumption is consumption that varies based on disposable income. As disposable income rises, so does the rate of induced consumption. This consumption applies to all normal goods and services, such as electronics, vehicles, and extra food.

As the value of disposable income rises, it induces a similar rise in consumption. Induced consumption demonstrates the typical phenomenon of how expenditures increase as wealth grows: People begin to enjoy more lavish lifestyles, spending more often, making more purchases, and incurring greater expenses. When people have more disposable income, they are also in a better position to save or invest money to be used as future income.

What Is Autonomous Consumption?

Autonomous consumption is the term used by economists to refer to expenses that must be paid by consumers regardless of income.

What Is an Example of Induced Consumption?

An example would be a person who had money left over after ensuring living expenses were covered; they might use it to purchase a television.

What Is an Example of Autonomous Consumption?

An example of autonomous consumption is a consumer that only makes enough money to cover living expenses and have no money left over for any other spending.

The Bottom Line

Economists use “autonomous consumption” to refer to consumers’ ability to only afford basic living expenses. “Induced consumption” is used to refer to consumers’ ability to spend on non-living-expense-related items.