Difference Between Autonomous Consumption and Induced Consumption

Consumer spending is not static. As such, people spend based on the amount of disposable resources available. When the amount of accessible income is high, people often spend on products and services which are not classified as necessities. However, when the level of income is low, people go into survival mode, purchasing only the essentials. While various economic factors such as a recession could result in autonomous consumption, an economic boom can result in induced consumption. In this article, we will look at the difference between autonomous consumption and induced consumption.   

What is Autonomous consumption?

These are products and services that must be purchased whether an individual has an income or not. They include essentials such as clothing, shelter, food, healthcare and utilities. They are considered independent since they help maintain a basic standard of living. 

Given that the basic standard of life must be maintained, the lack of income can force an individual to borrow or use savings. For most people, autonomous consumption often leads to the problem of dissaving, whereby individuals spend all their savings on necessities. This can lead to more problems such as excessive borrowing. 

Among the factors that affect the level of autonomous consumption include:

• Levels of an individual’s savings
• Lack of basic needs due to loss of incomes
• Commitments to pay bills 
• Expectations of future income which leads to more borrowing 

Measures to resolve the problem of autonomous consumption often differ with individuals. Most people, however, are forced to change spending habits such as change eating habits, limit the use of some utilities or stop its use altogether or even downsize a home to cut on rent expenditure. 

What is Induced Consumption?

This is the consumption of products and services that is influenced by the income level. As such, induced consumption increases with an increase in income and reduces with a decrease in the level of income. 

This phenomenon shows how expenditure increases with an increase in wealth as people enjoy more luxurious lifestyles, spend more often and incur more expenses. 

In induced consumption, the accessible income falls to zero when induced consumption is at zero. It is advisable to invest or save more during this period. 

Other induced expenditures include government purchases, investment expenditure and net exports. 

Similarities between Autonomous consumption and Induced consumption

• Both refer to consumer spending habits based on the level of income available

Differences between Autonomous consumption and Induced consumption

Definition

Autonomous consumption involves the consumption of products and services that must be purchased whether an individual has an income or not including essentials such as shelter, food, clothing, healthcare and utilities. On the other hand, induced consumption involves the consumption of products and services that is influenced by the income level.

Types of products

While autonomous consumption involves essentials including clothing, shelter, food, healthcare and utilities, induced consumption involves non-essentials such as luxury products. 

Level of income

While autonomous consumption is seen in people with little to no income, induced consumption is seen in people with accessible and have money to spend even after paying all the necessary bills. 

Autonomous consumption vs. Induced consumption: Comparison Table

Summary of Autonomous consumption vs. Induced consumption

Autonomous consumption involves the consumption of products and services that must be purchased whether an individual has an income or not including essentials including shelter, food, clothing, healthcare and utilities. At this stage, people should cut on unnecessary spending such as unutilized bills. On the other hand, induced consumption involves the consumption of products and services that is influenced by the income level. It is advisable to invest or save more during this period as the level of accessible income is high. 

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