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Questions
The consumption expenditure Ec of a person with the income x. is given by Ec = 0.0006x2 + 0.003x. Find MPC, MPS, APC and APS when the income x = 200.
The consumption expenditure Ec of a person with income x is given by Ec = 0.0006x2 + 0.003x. Find the average propensity to consume (APC), marginal propensity to consume (MPC) when his income is ₹ 200. Also find his marginal propensity to save (MPS).
The consumption expenditure Ec of a person with income x is given by Ec = 0.0006x2 + 0.003x.
Find average propensity to consume, marginal propensity to consume when his income is ₹ 200. Also find his marginal propensity to save and average propensity to save.
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Solution
The expenditure Ec of a person with income x is given by
Ec = 0.0006x2 + 0.003x
So, marginal propensity to consume (MPC) = `(dE_c)/(dx)`
= `d/(dx)(0.0006x^2 + 0.003x)`
= 0.0006 × 2x + 0.003
= 0.0012x + 0.003
When x = 200,
MPC = (0.0012 × 200) + 0.003
= 0.24 + 0.003 = 0.243
MPS = 1 − MPC
= 1 − 0.243
= 0.757
Now APC =`E_c/x`
= `(0.0006x^2 + 0.003x)/x`
= 0.0006x + 0.003
When x = 200
APC = 0.0006 × 200 + 0.003
= 0.12 + 0.003 = 0.123
APS = 1 − APC
= 1 − 0.123
= 0.877
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