Edexcel A Level Economics: Chapter 24 - Consumption
What is consumption? - Answer-Consumption = spending on goods and services over a period of time
What are durable goods? - Answer-Durable goods: Goods which although are bought at a point of time, continue to help the consumer individual (pr...
Edexcel A Level Economics: Chapter 24
- Consumption
What is consumption? - Answer-Consumption = spending on goods and services over a period
of time
What are durable goods? - Answer-Durable goods: Goods which although are bought at a point
of time, continue to help the consumer individual (provide services for the consumer for a
sustained period of time.
What are non durable goods? - Answer-Non-durable goods: goods and services which are used
up immediately over a period of time (e.g. sanitary products such as soap etc)
What is the most important determinant of consumption? - Answer-The most important
determinant of consumption = disposable income
What is the definition of the marginal propensity to consume? - Answer-The change in
consumption when there is a change in income is measured by the marginal propensity to
consume.
What is the equation for MPC? - Answer-MPC = Change in consumption/Change in income
What is the MPC likely to be for an entire economy? - Answer-For the entire economy as a
whole, the marginal propensity to consume is likely to be positive but less than 1 since any rise
in income will lead to an increase in spending but also an increase in saving.
How can the marginal propensity to consume be greater than 1 for some? - Answer-For
individuals, the marginal propensity to consume could be more than 1 if money were borrowed
to finance spending higher than income.
What is the average propensity to consume? - Answer-The average propensity to consume
measures the average amount spent on consumption out of total income in an economy.
For example, if total disposable income in an economy was £100 billion and consumption was
£90 billion, then average propensity to consume would be 0.9.
MPC = Consumption/Income = C/Y
In a developed country, what is the APC likely to be? - Answer-- In a rich developed economy,
APC is likely to be less than 1 since people are more likely to save a fraction of their earnings
What is the Keynesian theory of consumption? - Answer-This theory states that income is the
most important determinant of consumption.
This theory and Keynesians in general suggest that as incomes rise, households would save a
larger proportion of their income than poorer households.
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