What Is Autonomous Consumption?
Autonomous consumption is explained as the expenditures that consumers must make even when they have no disposable income. Certain great need to be purchased, regardless of how much income or money a consumer has in their possession at any given time. When a consumer is low on resources, settlement for these necessities can force them to borrow or access money that they had previously been saving.
Key Takeaways
- Autonomous consumption is demarcated as the expenditures that consumers must make even when they have no disposable income.
- These expenses cannot be rejected, regardless of limited personal income, and, as a result, are deemed autonomous or independent.
- When a consumer is low on resources, paying for their needs can force them to borrow or access money that they had previously been saving.
Understanding Autonomous Consumption
Settle accounts if a person has no money, they still need certain things, such as food, shelter, utilities, and healthcare. These expenses cannot be killed, regardless of limited personal income, and, as a result, are deemed autonomous or independent.
Autonomous consumption can be contrasted with discretionary consumption, a name given to goods and services that are considered non-essential by consumers, but desirable if their available income is sufficient to purchasing them.
If a consumer’s income were to disappear for a time, they would have to either dip into savings or increment debt to finance essential expenses.
The level of autonomous consumption can shift in response to events that limit or expel sources of income, or when available savings and financing options are low. This can include the downsizing of a home, changing breakfast habits, or limiting the use of certain utilities.
Dissaving, the opposite of saving, refers to spending money beyond one’s available proceeds. This can be achieved by tapping into a savings account, taking cash advances on a credit card, or borrowing against unborn income (via a payday or regular loan).
Also referred to as negative saving, dissaving can be examined on an individual level or on a weightier economic scale. If the autonomous spending within a community or population exceeds the cumulative income of the included individuals, the thrift has negative savings (and it is likely taking on debt to finance its expenses).
A person does not need to experience financial deprivation for dissaving to take place. For example, a person may have significant savings to pay for a major life event, such as a marriage ceremony, to use the accrued funds for a discretionary expense.
Governments allocate their available funds to mandatory, autonomous expenditures or discretionary expenses. Commanded, or autonomous, expenditure includes funds mandated for specific programs and purposes that are considered necessary for the nation to operate properly, such as Social Security,
Autonomous Consumption vs. Induced Consumption
The difference between autonomous consumption and leaded consumption is that the latter should fluctuate depending on income.
Induced consumption is the portion of spending that reorganizes depending on disposable income levels. As the value of disposable income rises, it is expected to induce a similar rise in consumption. People in this berth are likely to spend more money on living lavishly, making more purchases, and incurring greater expenses.