The income of an individual increases from N150 to N250 and his consumption rate increases from N100 to N150. Calculate the Marginal Propensity to Consume?

A. 2
B. 0.4
C. 1
D. 0.5

Correct Answer:

Option D – 0.5

Explanation

The Marginal Propensity to Consume (MPC) is the additional amount consumed as a fraction of additional disposable income.
Initial income = N150.
New income = N250.
Change in income = N250 – N150 = 100
Initial consumption = N100
New consumption = N150.
Change in consumption = N150 – N100 = N50.
MPC = Change in consumption ÷ Change in income .
= 50/100 = ½
MPC = 0.5