suppose that you win a $1,000 scholarship competition, and spend $600 of that amount right away on books and food, and save $400 for use in the following semester. what is your marginal propensity to consume?

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24-10-2022
Business

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suppose that you win a $1,000 scholarship competition, and spend $600 of that amount right away on books and food, and save $400 for use in the following semester. what is your marginal propensity to consume?

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varshamittal029 varshamittal029 · Answer 1 · 2022-11-06T04:21:32-05:00

Marginal propensity to consume is 0.6.

Marginal propensity to consume (MPC) is the percentage of additional income that an individual spends rather than saves. It is the percentage of an overall salary increase that a customer spends on the purchase of goods and services.

MPC = Change in consumption ÷ Change in income

In this ques, it is given that the total income is $1000 out of which $600 is being spent and $400 is being saved.

Change in consumption = difference between current consumption and previous consumption.

Change in income = difference between current income and previous income.

In this ques, previous income and consumption are not given, thus, it is assumed to be 0.

Thus, change in consumption = $600 - $0 = $600

Change in income = $1000-0 = $1000

Thus,

MPC = Change in consumption ÷ Change in income

= 600 ÷ 1000

= 6 ÷10

= 0.6

Thus, Marginal propensity to consume is 0.6.

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