Assume a household would consume $100 worth of goods and services per week if its weekly income were zero and would spend an additional $80 per week for each $100 of additional income.Letting C represent consumption and Y represent income, the equation which summarizes this relationship is:
A)C = 80 + 100Y.
B)C = 100 + .8Y.
C)C = 100 + 80Y.
D)C = 80 + .1Y.

Question

Quizplus · Accepted Answer

The equation that represents the relationship between consumption (C) and income (Y) is C = 100 + 0.8Y. This is because at zero income, consumption is $100 (the constant term), and for each $100 of additional income, consumption increases by $80 (the coefficient of Y). Therefore, the correct answer is B.

Assume a Household Would Consume $100 Worth of Goods and Services