Economics Principles For A Changing World
Economics Principles For A Changing World
4th Edition
ISBN: 9781464186660
Author: CHIANG, Eric P.
Publisher: Worth Publishers,
Question
Book Icon
Chapter 19, Problem 1QP
To determine

Difference between the average propensity to consume (APC) and the marginal propensity to consume (MPC).

Expert Solution & Answer
Check Mark

Explanation of Solution

APC is an average where the total amount spent on consumption is compared to the total income earned. Hence, it is calculated as follows:

APC=Total spending on consumptionTotal income

However, in the case of MPC, it is associated to the changes that occur in income and spending. Hence, MPC is calculated as follows:

MPC=Change in consumptionChange in income

When there is in increase in the income, two choices that are available are either to spend or to save the money. As MPC is associated to changes on spent income, the amount that is not spent will have to be saved and this becomes MPS. Hence, the numerator will have change in the money spent or saved and when added together it has to be the total change in income. Hence, the denominator will have the total change in income. One will be the result when adding MPS and MPC.

Economics Concept Introduction

APC (APC): Average propensity to consume refers to the consumption per unit.

Marginal propensity to consume (MPC): Marginal propensity is to consume change in the level of consumption due to change in one unit of the disposable income.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education