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Question
Suppose income of an individual increases from ₹ 50,000 to ₹ 60,000. As a result, his consumption expenditure rises from ₹ 40,000 to ₹ 48,000. Marginal Propensity to Consume (MPC) in such a case would be ______.
Options
0.8
0.5
0.75
0.6
MCQ
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Solution
Suppose income of an individual increases from ₹ 50,000 to ₹ 60,000. As a result, his consumption expenditure rises from ₹ 40,000 to ₹ 48,000. Marginal Propensity to Consume (MPC) in such a case would be 0.8.
Explanation:
MPC = `(Delta C)/(Delta Y)`
ΔC = New Consumption − Initial Consumption
= ₹ 48,000 − ₹ 40,000
= ₹ 8,000
ΔY = New Income − Initial Income
= ₹ 60,000 − ₹ 50,000
= ₹ 10,000
MPC = `(Delta C)/(Delta Y)`
= `(₹ 8,000)/(₹ 10,000)`
= 0.8
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