The graph shows two consumption functions with the same autonomous consumption. Which has the higher MPC, and what is it? Two consumption lines that both start at ₹50 crore. At an income of ₹400 crore, C₁ is at ₹350 crore (point P) and C₂ is at ₹250 crore (point Q).

The graph shows two consumption functions…

The graph shows two consumption functions with the same autonomous consumption.

Question 21

HardOriginal question

The graph shows two consumption functions with the same autonomous consumption. Which has the higher MPC, and what is it?

Two consumption lines that both start at ₹50 crore. At an income of ₹400 crore, C₁ is at ₹350 crore (point P) and C₂ is at ₹250 crore (point Q).

C₁, with MPC 0.75Correct answerYour answerC₂, with MPC 0.5Correct answerYour answerC₁, with MPC 0.875Correct answerYour answerBoth have MPC 0.75Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Both start at ₹50 crore. At Y = ₹400 crore, C₁ = 350 and C₂ = 250.
MPC of C₁ = (350 − 50) ÷ 400 = 0.75; MPC of C₂ = (250 − 50) ÷ 400 = 0.5. C₁ is steeper.

Worth noting

0.875 is C₁'s APC at P (350 ÷ 400), not its MPC.

Concept: Slope of the consumption function
Typical timeTypical: 100 s
Your timeYours: —

The rule this testsThe consumption function

Practise this chapter →

Ten questions from Aggregate Demand, Consumption & Saving, at your own pace.

Practise this chapter →

Ten questions from Aggregate Demand, Consumption & Saving, at your own pace.

The graph shows two consumption functions with the same autonomous consumption.

Question 21

Explanation