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April 25, 2018 

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LERNER INDEX: The difference between price (p) and marginal cost (mc) as a fraction of price, that is [p-mc]/p. The Lerner index is usually taken as an indicator of market power because the larger the index, the larger the difference between price and marginal cost, that is, the larger the distance between the price and the competitive price. The Lerner index depends on the elasticity of demand. The Lerner index is also called the price-cost margin.

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PERSONAL CONSUMPTION EXPENDITURES:

The official item in the National Income and Product Accounts maintained by the Bureau of Economics Analysis that measures household consumption expenditures on gross domestic product. Personal consumption expenditures are far and away the largest and most stable of the four expenditures, averaging about 65 to 70 percent of gross domestic product. The other official expenditures included in the National Income and Product Accounts are gross private domestic investment, government consumption expenditures and gross investment, and net exports of goods and services.
Personal consumption expenditures is the official government measure of consumption expenditures undertaken by the household sector. It seeks to quantify that portion of gross domestic product that is purchased by the household sector and which is used, in theory at least, to satisfy wants and needs. These expenditures purchase a wide range of goods and services, from hot fudge sundaes to sports cars, from stuffed animals to tacos, from health care to baseball tickets.

Consumption Times Three

Personal consumption expenditures is one of three related terms containing the word consumption. Consumption and consumption expenditures are the other two terms. They range from the conceptual (consumption) to the official measurement (personal consumption expenditures). Here is an overview of all three:
  • Consumption: This is the generic term for the use of goods and services to satisfy wants and needs. This activity may or may not involve actual purchases or expenditures. Consumption is the fundamental process in the economy that addresses the scarcity problem. It is, in effect, the ultimate goal of economic activity.

  • Consumption Expenditures: This is the more specific term referring to actual expenditures on final goods and services, or gross domestic product, by the household sector. Some consumption does not involve consumption expenditures and some consumption expenditures do not necessarily result in actual consumption.

  • Personal Consumption Expenditures: This is the official measure of the consumption expenditures component of aggregate expenditures used in the calculation of gross domestic product. While the official number-crunchers try to measure ALL consumption expenditures, some are missed by the official calculation.

Three Consumption Categories

Personal consumption expenditures are officially separated into three categories in the National Income and Product Accounts: durable goods, nondurable goods, and services.
  • Durable goods are the tangible goods purchased by consumers that tend to last for more than a year. Common examples are cars, furniture, and appliances. The two most important subcategories of durable goods in the National Income and Product Accounts are "motor vehicles and parts" and "furniture and other household equipment." Durable goods purchases are usually about 10 to 15 percent of personal consumption expenditures. This percentage tends to be at the low end during business-cycle contractions and at the high end during business-cycle expansions.

  • Nondurable goods are the tangible goods purchased by consumers that tend to last for less than a year. Common examples are food, clothing, and gasoline. In fact, the three most important subcategories of nondurable goods in the National Income and Product Accounts are listed as "food," "clothing and shoes," and "gasoline and oil." Nondurable goods purchases are usually about 25 to 30 percent of personal consumption expenditures.

  • Services are activities that provide direct satisfaction of wants and needs without the production of tangible goods. Common examples are information, entertainment, and education. The four primary subcategories of services in the National Income and Product Accounts are "housing," "household operation," "transportation," and "medical care." Expenditures on services are the largest of the three consumption categories, coming in at about 55 to 60 percent of personal consumption expenditures.

Three More Expenditures

The number crunchers at the Bureau of Economic Analysis separate gross domestic product into expenditures by the four macroeconomic sectors (household, business, government, and foreign). Personal consumption expenditures are those by the household sector. The official entries in the National Income and Product Accounts for the other three are: gross private domestic investment (business), government consumption expenditures and gross investment (government), and net exports of goods and services (foreign).
  • Gross Private Domestic Investment: The official measure of investment expenditures on gross domestic product by the business sector. Gross private domestic investment averages about 15 percent of gross domestic product. These expenditures come in two broad categories: (1) fixed investment and (2) changes in private inventories.

  • Government Consumption Expenditures and Gross Investment: The official measure of government purchases for gross domestic product by the government sector. Government consumption expenditures and gross investment also average about 15 percent of gross domestic product. These purchases are divided into two groups: (1) federal and (2) state and local.

  • Net Exports of Goods and Services: The official measure of net exports of gross domestic product by the foreign sector, which is the difference between exports and imports. Net exports of goods and services average about 2 percent of gross domestic product, with exports and imports individually in the range of about 10 percent.

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Recommended Citation:

PERSONAL CONSUMPTION EXPENDITURES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: April 25, 2018].


Check Out These Related Terms...

     | gross private domestic investment | government consumption expenditures and gross investment | net exports of goods and services | durable goods, consumption | nondurable goods, consumption | services, consumption |


Or For A Little Background...

     | gross domestic product, expenditures | consumption | consumption expenditures | household sector | gross domestic product | production | product markets | National Income and Product Accounts | Bureau of Economic Analysis | National Bureau of Economic Research |


And For Further Study...

     | macroeconomic sectors | circular flow | business cycles | gross domestic product, ins and outs | gross domestic product, income | gross domestic product, welfare | net domestic product | national income | personal income | disposable income | gross national product | real gross domestic product | saving | inflation | unemployment |


Related Websites (Will Open in New Window)...

     | Bureau of Economic Analysis |


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