The Marginal Propensity to Consume
Modern macroeconomics attaches much importance to the response of consumption to changes in income. This concept is called the marginal propensity to consume, or MPC. The word “marginal” is used throughout economics to mean extra or additional. For example. “marginal cost” means the additional cost’ of producing an extra unit of output. “Propensity to consume” designates the desired level be consumption. The MPC. is therefore the additional or extra consumption that results from an extra dollar of disposable income.
Table 22-4 above rearranges Table 22-3’5 data in a more convenient form. First, verify its similarity to Table 22-3. Then; look at columns (1) and (2) to see how consumption expenditure goes up with higher levels of income.
You can compute MPC between other income levels In Table 22-4, MPC begins at 0.89 for the poor and finally falls to 0.53 at higher incomes.
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