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Last updated: February 12, 2017

What Does Consumption Mean?

Consumption is a concept in economics that studies how consumption is correlated to net income. Generally, consumption of goods increases with an increase in income, with consumption exceeding income leading to debt. In the calculation of a country’s Gross Domestic Product (or GDP for short), there are two main types of consumption, personal consumption and government consumption. Personal consumption refers to the usage of an individual’s personal income to consume perishables and non-perishables, as well as paying for services. Government consumption refers to the government spending on the running of the nation.

Safeopedia Explains Consumption

Essentially, consumption refers to the usage and procurement of products and services in exchange for money. Consumption occurs on a large range of scales, from an individual level to a governmental level. In the case where an entity consumes more than his income can afford, that is he spends more than he can afford, he goes into debt. On a personal level, consumption can be the purchase of anything from food to electrical services. On a governmental level, consumption can be the governmental spending on healthcare and defence. On the industrial level, consumption refers to the use of materials.


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