Question

The expenditure Ee of a person with income. x  ls given by Ec = (0.000035).x² + (0.045)x~ Find the marginal propensity to consume and marginal propensity to save when x = 5000. Also find the average propensity to consume and average propensity to save.

Answer 1

Given E_c = (0.000035)x² + (0.045)x

APC = `E_c/x`

       = 0.000035x + 0.045

At x = 5000.

APC = 0.000035 x 5000 + 0.045
        = 0.22

MPC = `(dE_c)/(dx)`

        = `d/dx` (0.000035)x^2 + (0.045)x

        = (0.000035 x 2x) + 0.045

        = 0.395

APS = 1 - APC

APS = 1 - 0.22 = 0.78

MPC = MPS = 1
0.395 + MPDS = 1
             MPS = 1 - 0.395

             MPS = 0.605