The income of an individual increases from N150 to N250 and his consumption rate increases from N100 to N150. Calculate the Marginal Propensity to Consume
A.
2
B.
0.4
C.
1
D.
0.5
Correct Answer: Option D
Explanation
The Marginal Propensity to Consume (MPC) is the additional amount consumed as a fraction of additional disposable income.
Initial income = N150.
New income = N250.
Change in income = N250 – N150 = 100
Initial consumption = N100
New consumption = N150.
Change in consumption = N150 - N100 = N50.
MPC = Change in consumption ÷ Change in income .
= 50/100 = ½
MPC = 0.5
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