If income rises from $1,000 to $1,800 and consumption rises from $1,200 to $1,500, the marginal propensity to?

Question

which of the following and why and how would you solve this


0.625.
0.375.
0.400.
2.660.

Answer 1

The marginal propensity to consume (MPC) refers to the increase in personal consumer spending (consumption) that occurs with an increase in disposable income (income after taxes and transfers). For example, if a household earns one extra dollar of disposable income, and the marginal propensity to consume is 0.65, then of that dollar, the family will spend 65 cents and save 35 cents.

Mathematically, the marginal propensity to consume (MPC) function is expressed as the derivative of the consumption (C) function with respect to disposable income (Y).

MPC=\frac{dC}{dY}

In other words, the marginal propensity to consume is measured as the ratio of the change in consumption to the change in income, thus giving us a figure between 0 and 1. The MPC can be more than one if the subject borrowed money to finance expenditures higher than their income. One minus the MPC equals the marginal propensity to save.

Since income rises by $800, that equals change in income. Change
in consumption is $300. The MPC is $300/$800=0.375
MPS=1-MPC, or 1-0.375=0.625
MPC=Marginal Propensity to Consume MPS=Marginal Propensity to Save. I'm not sure which one you wanted, but I did calculations for both.
If you want MPC, choose 0.375. I think the person who chose 2.660
applied the formula incorrectly. You can ask your Economics prof/
instructor/teacher about this in class.

Answer 2

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Answer 3

1,800-1,000=800
1,500-1,200=300

800/300=2.66