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Understanding Marginal Propensity to Consume

The document defines key economic concepts related to consumption and saving behaviors: Marginal Propensity to Consume (MPC) refers to the change in consumption from a change in disposable income; Marginal Propensity to Save (MPS) is the fraction of additional income that is saved; Average Propensity to Consume (APC) is consumption as a proportion of total income; and Average Propensity to Save (APS) is savings as a proportion of total income, with MPC and MPS always summing to 1.

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Daniel Laurence Fabian Vergara
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30 views4 pages

Understanding Marginal Propensity to Consume

The document defines key economic concepts related to consumption and saving behaviors: Marginal Propensity to Consume (MPC) refers to the change in consumption from a change in disposable income; Marginal Propensity to Save (MPS) is the fraction of additional income that is saved; Average Propensity to Consume (APC) is consumption as a proportion of total income; and Average Propensity to Save (APS) is savings as a proportion of total income, with MPC and MPS always summing to 1.

Uploaded by

Daniel Laurence Fabian Vergara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Marginal Propensity to Consume (MPC)

Th e concept of MPC was introduced by John Maynard Keynes to explain how consumption
can change. Th e term “marginal” to economists refers to extra or additional; propensity
means tendency. Marginal propensity to consume is defined as the change in consumption
from a given change in disposable income; or, the additional tendency of an individual to
consume when his/ her disposable income increases by 1 peso.
MPC = ΔC / ΔY

Marginal Propensity to Save (MPS)


The is refers to the fraction of disposable income that is saved. Expressed mathematically:
MPS = ΔS / ΔY

Average Propensity to Consume (APC)


This is defined as the proportion of income that is consumed, or:
APC = C / Y

Average Propensity to Save (APS)


It is defined as the proportion of income that is saved.
APS = S / Y

MPC + MPS = 1
S
S

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