Question

The expenditure E_c of a person with income I is given by E_c = (0.000035) I² + (0. 045) I. Find marginal propensity to consume (MPC) and average propensity to consume (APC) when I = 5000.

Answer 1

E_c = (0.000035) I² + (0. 045) I

`"MPC" = ("dE"_"c")/("dI")`

= 2(0.000035) I + 0.045

For I = 5000,

MPC = 2(0.000035)5000 + 0.045

∴ MPC = 0.35 + 0.045

⇒ MPC = 0.395

APC = `("E"_"c")/"I"`

∴ APC = (0.000035) I + 0.045

For I = 5000,

APC = (0.000035)(5000) + 0.045

⇒ APC = 0.22