(Graph: Consumption) Based on the information provided in the graph, the marginal propensity to consume equals
A) 0.5.
B) 0.6.
C) 0.7.
D) 0.8.

Question

(Graph: Consumption) Based on the information provided in the graph, the marginal propensity to consume equals 
A) 0.5. 
B) 0.6. 
C) 0.7. 
D) 0.8.

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the change in consumption resulting from a change in income. In this graph, we can see that when income increases from $500 to $600, consumption increases from $650 to $710. Therefore, change in consumption is $60 and change in income is $100. MPC is calculated as change in consumption divided by change in income, i.e., 60/100 = 0.6. Therefore, the answer is B.

(Graph: Consumption) Based on the Information Provided in the Graph