Macroeconomics: Principles for a Changing World
4th Edition
ISBN: 9781464186929
Author: Eric Chiang
Publisher: Worth Publishers
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Question
Chapter 8, Problem 1QP
To determine
Difference between the average propensity to consume (APC) and the marginal propensity to consume (MPC).
Expert Solution & Answer
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:
However, in the case of MPC, it is associated to the changes that occur in income and spending. Hence, MPC is calculated as follows:
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.
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Students have asked these similar questions
Wolfgang is a typical producer in a perfectly
competitive piano industry (i.e., all other producers of
pianos face the same costs as Wolfgang). The
following production and cost data apply to the long run
as well as the short run. Fixed costs (rent) are
unrecoverable in the short run and are equal to $2400
per month. Variable costs consist of raw
materials (wire, wood, plastic), which cost $1000
per piano, and the $40 per hour opportunity cost
of Wolfgang's time. Wolfgang's production function is
given in the table at right.
Wolfgang will shut down if the price per piano is less
than
OA. $3000.
B. $4000.
O C. $5000.
○ D. None of the above.
Pianos (Q)
Hours (L)
Raw Materials (
0
0
0
1
100
1000
2
150
2000
3
240
3000
4
400
4000
P2
P₁
$ per unit
Using the graph below, determine which statement is TRUE.
MC1
SRATC₁
Q1
Q₂
MC2 SRATC2
LRAC
✓ LEA
Quantity
Using the grapns below, wnicn snow the snort-run cost curves for 3 perfectly competitive firms in the same industry, determine whether the industry is in long-run equilibrium or not.
Q
Q
Firm A
QA
MC
ATC
Output
Firm B
QB
MC
ATC
Firm C
MC
ATC
Output
Output
Qc
If Firms A, B and C are in the same industry, is this industry in long-run equilibrium?
○ A. Yes, because P = MC = MR for each of the 3 firms.
○ B. No, because Firm A is not producing at a profit-maximizing level of output.
○ C. Yes, because all 3 firms are producing at their minimum average total cost.
OD. The answer is uncertain since it's unknown whether the firms are producing at the minimum efficient scale or not.
○ E. No, because if the industry were in equilibrium, all 3 firms would be earning zero economic profits.
Chapter 8 Solutions
Macroeconomics: Principles for a Changing World
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