Mehran Bhavsar

In other words, Marginal Propensity to Consume (MPC) measures the proportionate rise in the consumption with increase in income or we can say it measures the proportion of extra pay that is spent on consumption of goods and services rather than saving it.

Marginal Propensity to Consume or MPC is dependent on the income level. It may vary with the income levels and it can be seen that the MPC is lower at higher income levels.

MPC can be calculated by determining the change in consumption divided by the change in income.

MPC is represented by the consumption line, which is a sloped line that is formed when change in consumption is plotted on the vertical y-axis with change in income on the horizontal x-axis.

MPC has always been concerned with the relationship between the consumption and changes in income. It is considered that higher income levels lead to lower consumption which leads to low MPC.

MPC also is a key determinant of the multiplier effect which is the impact of increased investment or government spending that results in increase in GDP.

MPC plays a key role by controlling the size of the multiplier as a higher MPC will result in a greater multiplier effect, while a lower MPC means low impact on the multiplier.

This can be illustrated from the following formula.

k = 1/ 1- MPC

Where k = Multiplier effect

MPC = Marginal Propensity to Consume

MPC can be calculated with the following formula

MPC = Change in Consumption (ΔC) / Change in Income (ΔY)

The value of MPC varies between 0 and 1 normally, but sometimes it can exceed 1, if the need for consumption is more than the change in income.

MPC can be classified into three types, which are

1. MPC more/greater than 1

2. MPC equal to 1

3. MPC less than 1

MPC greater than 1: When MPC value is greater than 1, it signifies that changes in the income levels have triggered a higher level of consumption which surpasses the value of 1. For e.g, if Ram earns a bonus of 1000 and they spent 2000 on purchasing goods.

Then the MPC will be 2. This spending can be attributed to autonomous consumption, which suggests that spending is not based on level of income.

It says that an individual having zero income will still feel the need to have enough food to eat and for that they could borrow or break down their existing savings.

MPC equal to 1: When the MPC is equal to 1, it shows a proportionate increase in income levels leading to an equal increase in the consumption of goods.

MPC less than 1: When MPC will be less than 1, there will be a proportionately smaller increase in the consumption with respect to the change in income levels.

Following factors are responsible for determining the MPC:

Income Levels: The levels of income have an impact on the MPC as a person having a low income level on receiving a boost in income will be looking forward to acquiring many such items that leads to more consumption.

In contrast to that, a person with a higher income level on receiving an income boost will be more interested in savings as he has most of the items necessary for consumption available with him.

Type of Increase in Income: The type of increase in income also has an impact on the MPC as increase in income can be either temporary or permanent. An individual with a temporary rise in income (obtained through bonus or incentives) will be interested in saving that amount, whereas a person receiving the same amount of increase in income, on a permanent basis will be more inclined towards consumption.

Interest Rates: Higher interest rates can encourage individuals towards savings rather than consumption, at the same time, higher interest rates can increase in income from the savings, which leads to more consumption.

Consumer Confidence: If the consumer confidence in the economy is high, it can result in people increasing their consumption. If the mentality of the population is pessimistic which can be due to rising unemployment or recession, it will result in delay in purchasing decisions, which can result in a lower MPC.

This concludes our article on the topic of Marginal Propensity to Consume, which is an important topic in Economics for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

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It is the basic property of matter

It causes attraction and repulsion in matter in presence of other matter

The amount of electricity contained in an object is called Electric Charge

It is denoted by Q.

There are 2 types Of Charges

There are 2 important properties of Electric Charge

So Positive Charge Attracts Negative Charge

(2 Positive Charges Repel each other  or 2 Negative Charges Attract Each Other)

We know that Atom is made up of Protons, Neutrons and Electrons

It is the flow of Electric Charges in Conductor

It is the amount of Electric Charge flowing in a body in 1 Second

It is denoted by I.

Electric Current = Electric Charge/Time

I = Q/t

It is measured in Ampere. It is denoted by A.

As

Electric Current = Electric Charge/Time

So

1 Ampere = 1 Coulomb/1 Second

It is measured in Ampere, Milliampere and Microampere

It is the SI Unit of Electric Current

It is named after French Scientist Andre Marie Ampere

As Electric current = Electric Charge/Time

So 1 Ampere = 1 Coulomb/1 Second

One ampere is defined as the current produced when a charge of 1 coulomb flows for 1 second.

It is smaller unit of Electric Current

1000 Milli Ampere = 1 Ampere

1 Milliampere = 1/1000 Ampere

1 Milliampere = 10 -3 Ampere

1 mA = 10 -3 A

It is even smaller unit of Electric Current

10,00,000 Miliampere = 1 Ampere

1 Milliampere = 1/1000000 Ampere

1 Microampere = 10 -6 Ampere

1 μA = 10 -6 A

Electric Current moves from negative Side of battery to positive Side of battery

In Circuit Diagram, it is represented that

Electric Current flows From Positive end to negative end

This is because when electricity was first discovered, the existence of electrons was not known

However, in reality, it is the opposite.

Electric Current flows from Negative end of battery to positive end

it is measured with the help of Ammeter

This instrument is connected in a series in an electric circuit

In circuit diagram, it is denoted by

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