How the value of the multiplier change with the marginal propensity to consume. Concept Introduction: Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of a country in the given interval of time. The formula to calculate change in GDP is: Here, is autonomous spending. MPC is marginal propensity to consume. Marginal Propensity to Consume (MPC): It is defined as the change which occurs in total consumption level due to change in disposable income. The formula to calculate MPC is: Here, is change in disposable income. is change in consumption level. MPC is marginal propensity to consume. Multiplier: It is defined as the ratio of total change in the gross domestic product due to change in the autonomous spending. The formula to calculate multiplier is: Here, MPC is marginal propensity to consume. Consumption Level ( C ): It is one of the largest components of GDP .The individual consumption depends on the disposable income. Consumption Function: It shows how the change in disposable income of an individual changes the consumption level. The formula to calculate consumption function is: Here, C is consumption level. is autonomous consumption. is disposable income MPC is marginal propensity to consume. Autonomous Consumption: It is defined as the consumption level when the income of an individual is zero.

Question

After the ban is imposed, Joe’s firm switches to the more expensive biodegradable disposable cups. This increases the cost associated with each cup of coffee it produces. Which cost curve(s) will be impacted by the use of the more expensive biodegradable disposable cups? Why? Which cost curve(s) will not shift, and why not? Please use the table below to answer this question. For the second column (“Impacted? If so, how?”), please use one of the following three choices: No shift; Shifts up (i.e., increases: at nearly any given quantity, the cost goes up); or Shifts down (i.e., decreases: at nearly any given quantity, the cost goes down). $ Cost Curve Impacted? If so, how? Explanation of the Shift: Why or Why Not AFC No shift. Fix costs stay the same, regardless of quantity. Fixed cost is calculated as Fixed Cost/Quantity. Since fixed costs remain unchanged, AFC stays the same for each quantity. MC Shifts up. Since the biodegradable cups are more expensive, the…

Answer 1

Question

Chapter 26.A, Problem 1P

To determine

How the value of the multiplier change with the marginal propensity to consume.

Concept Introduction:

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of a country in the given interval of time.

The formula to calculate change in GDP is:

Here,

is autonomous spending.

MPC is marginal propensity to consume.

Marginal Propensity to Consume (MPC): It is defined as the change which occurs in total consumption level due to change in disposable income.

The formula to calculate MPC is:

Here,

is change in disposable income.

is change in consumption level.

MPC is marginal propensity to consume.

Multiplier: It is defined as the ratio of total change in the gross domestic product due to change in the autonomous spending.

The formula to calculate multiplier is:

Here,
MPC is marginal propensity to consume.

Consumption Level ( C ): It is one of the largest components of GDP .The individual consumption depends on the disposable income.

Consumption Function: It shows how the change in disposable income of an individual changes the consumption level.

The formula to calculate consumption function is:

Here,
C is consumption level.

is autonomous consumption.

is disposable income

MPC is marginal propensity to consume.

Autonomous Consumption: It is defined as the consumption level when the income of an individual is zero.

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After the ban is imposed, Joe’s firm switches to the more expensive biodegradable disposable cups. This increases the cost associated with each cup of coffee it produces. Which cost curve(s) will be impacted by the use of the more expensive biodegradable disposable cups? Why? Which cost curve(s) will not shift, and why not? Please use the table below to answer this question. For the second column (“Impacted? If so, how?”), please use one of the following three choices: No shift; Shifts up (i.e., increases: at nearly any given quantity, the cost goes up); or Shifts down (i.e., decreases: at nearly any given quantity, the cost goes down). $ Cost Curve Impacted? If so, how? Explanation of the Shift: Why or Why Not AFC No shift. Fix costs stay the same, regardless of quantity. Fixed cost is calculated as Fixed Cost/Quantity. Since fixed costs remain unchanged, AFC stays the same for each quantity. MC Shifts up. Since the biodegradable cups are more expensive, the…

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