Induced consumption

Induced consumption is the portion of consumption that varies with disposable income. When a change in disposable income “induces” a change in consumption on goods and services, then that changed consumption is called “induced consumption”. In contrast, expenditures for autonomous consumption do not vary with income. For instance, expenditure on a consumable that is considered a normal good would be considered to be induced.

In the simple linear consumption function,

$C=a+b\times Y_d$

induced consumption is represented by the term $b\times Y_d$, where $Y_d$ denotes disposable income and $b$ is called the marginal propensity to consume.

See also

• Lifestyle creep
• Diderot effect
• Induced demand