The consumption schedule in the diagram below indicates that:
A) consumers will maximize their satisfaction where the consumption schedule and 45° line intersect.
B) up to a point consumption exceeds income,but then falls below income.
C) the MPC falls as income increases.
D) households consume as much as they earn.

Question

The consumption schedule in the diagram below indicates that: 
A) consumers will maximize their satisfaction where the consumption schedule and 45° line intersect. 
B) up to a point consumption exceeds income,but then falls below income. 
C) the MPC falls as income increases. 
D) households consume as much as they earn.

Quizplus · Accepted Answer

The consumption schedule indicates that up to a certain point, consumption exceeds income, but then falls below income. This is evident from the fact that initially, as income increases from 0 to $50, consumption also increases from 0 to $60, but beyond an income of $50, consumption starts to fall below income. This suggests that consumers are either saving some portion of their income or borrowing to finance consumption beyond their current income level. Therefore, option B is the correct answer. Option A is incorrect because maximizing satisfaction requires the consumption schedule and the budget line to intersect, not the 45° line. Option C is incorrect because the MPC is constant in this case, and option D is incorrect because the consumption exceeds the income initially.

The Consumption Schedule in the Diagram Below Indicates That