March 21, 2018 

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BUDGET PROPORTION: One of three elasticity determinants (time period and substitute availability are the other two) stating that the elasticity of a good tends to be greater when the proportion of the budget devoting to the good is greater. In other words, the price elasticity of demand for housing (which takes up a sizeable portion of most budgets) is greater than that for a pair of socks (which does not take up much of most budgets). Even small percentage changes in goods that constitute a sizeable share of income can be quite large in absolute terms. As such, buyers tend to more sensitive to price changes in big-budget expenditures. This elasticity determinant works primarily for the price elasticity of demand.

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Personal consumption expenditures on activities that provide direct satisfaction of wants and needs without the production of tangible goods. Common examples are information, entertainment, and education. This is one of three categories of personal consumption expenditures in the National Income and Product Accounts maintained by the Bureau of Economic Analysis. The other two are durable goods and nondurable goods. Services are about 60 percent of personal consumption expenditures and 40 percent of gross domestic product.
Services are consumption activities purchased by the household sector that generally provide for direct satisfaction without a physical, tangible product. Household expenditures on services are generally unaffected by business cycles. In good times and bad, the household sector continues to purchase services at a relatively constant pace.

The four main categories of services in the National Income and Product Accounts are "housing," "household operation," "transportation," and "medical care." Housing and medical care are the two largest of these four categories, each about 25 percent of consumer expenditures on services. Household operation takes up 10 percent. And, transportation is the smallest of the four, at less than 8 percent. The services category of personal consumption expenditures is extremely diverse, as reflected by the size of the "other" category, which is in the neighborhood of 30 percent.

A notable point about the services category of personal consumption expenditures is its size. Sixty percent of the expenditures made by the household sector and 40 percent of all purchases for GDP are services. This means that A LOT of economic production takes place each year that does NOT involve tangible products. This has not always been the way of the economic world. A hundred years ago, even fifty years ago, the vast majority of the productivity activity in the economy was the production of tangible products. Services, however, have become and will continue to be increasingly important.

But do not be overly alarmed. The change in the mix of goods and services produced and consumed in the economy is a reflection of economic progress. Two hundred years ago, consumers were primarily concerned with acquiring food, clothing, and shelter. A hundred years ago, consumers had most of the food, clothing, and shelter needed, so they sought other tangible goods like cars and household appliances. Now, consumers have food, clothing, shelter, cars, and appliances, and what they seek is entertainment, education, and medical care. Being able seek these services means that consumers have come a long, long way in satisfying wants and needs. And that is progress.


Recommended Citation:

SERVICES, CONSUMPTION, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2018. [Accessed: March 21, 2018].

Check Out These Related Terms...

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

Or For A Little Background...

     | personal consumption expenditures | 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 |

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

     | Bureau of Economic Analysis | National Bureau of Economic Research |

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