Marginal propensity to consume - Revision history

Vipul: /* Interval definition */

2011-07-25T18:03:55Z

Interval definition

← Older revision		Revision as of 18:03, 25 July 2011
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	<math>\operatorname{MPC} = \frac{C_2 - C_1}{Y_2 - Y_1} = \frac{\Delta C}{\Delta Y} = 1 - \frac{\Delta S}{\Delta Y}</math>		<math>\operatorname{MPC} = \frac{C_2 - C_1}{Y_2 - Y_1} = \frac{\Delta C}{\Delta Y} = 1 - \frac{\Delta S}{\Delta Y}</math>

	The two definitions are related in that the derivative is a limit of a difference quotient, so as <math>Y_2 \to Y_1</math>, we obtain the marginal propensity to consume at <math>Y_1</math>.		The two definitions are related in that the derivative is a limit of a difference quotient, so as <math>Y_2 \to Y_1</math>, we obtain the marginal propensity to consume at <math>Y_1</math>. Also, the MPC over an interval is the average of the MPC values at all points in that interval.

	==Values and interpretations==		==Values and interpretations==

Vipul: /* Definition */

2011-07-25T18:02:56Z

Definition

← Older revision		Revision as of 18:02, 25 July 2011
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	The marginal propensity to consume is a measure of [[defining ingredient::induced consumption]] -- the component of consumption that is ''induced'' by changes in one's disposable income. This is in contrast with [[autonomous consumption]] (also called exogenous consumption) which is the component of consumption that is relatively unaffected by income levels and is undertaken even when income levels are close to zero.		The marginal propensity to consume is a measure of [[defining ingredient::induced consumption]] -- the component of consumption that is ''induced'' by changes in one's disposable income. This is in contrast with [[autonomous consumption]] (also called exogenous consumption) which is the component of consumption that is relatively unaffected by income levels and is undertaken even when income levels are close to zero.

			The ''underlying additive identity'' at the heart of this concept is:

			<math>\! Y = C + S</math>

			where <math>Y</math> denotes disposable income, <math>C</math> is the amount allocated to consumption, and <math>S</math> is the amount allocated to saving.

	===Differential definition===		===Differential definition===
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	This definition measures the marginal propensity to consume ''at'' a given level of disposable income, and is defined as the derivative of consumption with respect to disposable income. If <math>Y</math> denotes disposable income and <math>C</math> denotes the total money spent on consumption, the marginal propensity to consume is given by:		This definition measures the marginal propensity to consume ''at'' a given level of disposable income, and is defined as the derivative of consumption with respect to disposable income. If <math>Y</math> denotes disposable income and <math>C</math> denotes the total money spent on consumption, the marginal propensity to consume is given by:

	<math>\operatorname{MPC} = \frac{dC}{dY}</math>		<math>\operatorname{MPC} = \frac{dC}{dY} = 1 - \frac{dS}{dY}</math>

	Note that the value may not be a constant but may depend on the level of <math>Y</math>.		Note that the value may not be a constant but may depend on the level of <math>Y</math>.
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	This definition measures the marginal propensity to consume ''between'' two levels of disposable income, and is defined as the ''difference quotient'' of consumption with respect to disposable income. If the consumption level is <math>C_1</math> for a disposable income of <math>Y_1</math> and is <math>C_2</math> for a disposable income of <math>Y_2</math>, the marginal propensity to consume is given by:		This definition measures the marginal propensity to consume ''between'' two levels of disposable income, and is defined as the ''difference quotient'' of consumption with respect to disposable income. If the consumption level is <math>C_1</math> for a disposable income of <math>Y_1</math> and is <math>C_2</math> for a disposable income of <math>Y_2</math>, the marginal propensity to consume is given by:

	<math>\operatorname{MPC} = \frac{C_2 - C_1}{Y_2 - Y_1}</math>		<math>\operatorname{MPC} = \frac{C_2 - C_1}{Y_2 - Y_1} = \frac{\Delta C}{\Delta Y} = 1 - \frac{\Delta S}{\Delta Y}</math>

	The two definitions are related in that the derivative is a limit of a difference quotient, so as <math>Y_2 \to Y_1</math>, we obtain the marginal propensity to consume at <math>Y_1</math>.		The two definitions are related in that the derivative is a limit of a difference quotient, so as <math>Y_2 \to Y_1</math>, we obtain the marginal propensity to consume at <math>Y_1</math>.

Vipul at 17:48, 25 July 2011

2011-07-25T17:48:49Z

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 ==Definition==
-The '''marginal propensity to consume''' (denoted '''MPC''') for an individual or household is a dimensionless quantity that measures the fraction of an additional unit of [[disposable income]] (i.e., the residual income after taxes and transfers) that is spent on additional consumption. Note that the marginal propensity to consume may not be a constant but may itself vary based on the level of disposable income.
+The '''marginal propensity to consume''' (denoted '''MPC''') for an individual or household is a dimensionless quantity that measures the fraction of an additional unit of [[defining ingredient::disposable income]] (i.e., the residual income after taxes and transfers) that is spent on additional consumption. Note that the marginal propensity to consume may not be a constant but may itself vary based on the level of disposable income.
 The marginal propensity to consume is a measure of [[defining ingredient::induced consumption]] -- the component of consumption that is ''induced'' by changes in one's disposable income. This is in contrast with [[autonomous consumption]] (also called exogenous consumption) which is the component of consumption that is relatively unaffected by income levels and is undertaken even when income levels are close to zero.
@@ Line 20: / Line 20: @@
 The two definitions are related in that the derivative is a limit of a difference quotient, so as <math>Y_2 \to Y_1</math>, we obtain the marginal propensity to consume at <math>Y_1</math>.
 ==Related notions==

Vipul: /* Related notions */

2011-07-25T15:09:52Z

Related notions

← Older revision		Revision as of 15:09, 25 July 2011
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	* [[Marginal propensity to save]], denoted '''MPS''', is defined as <math>1 - MPC</math>, and is the fraction of additional disposable income allocated to additional savings.		* [[Marginal propensity to save]], denoted '''MPS''', is defined as <math>1 - MPC</math>, and is the fraction of additional disposable income allocated to additional savings.
			* [[Average propensity to consume]], denoted '''APC''', is defined as <math>C/Y</math>, and is the fraction of total disposable income spent on consumption.
			* [[Average propensity to save]], denoted '''APS''', is defined as <math>1 - APC</math>, and is the fraction of total disposable income allocated to savings.

	==Short run versus long run==		==Short run versus long run==

	Some part of consumption decisions is made based on the (estimate of) long run disposable income, also called [[permanent income]]. Other consumption decisions are made based on short run disposable income. It is possible to conceptually distinguish the marginal propensity to consume based on permanent income from the marginal propensity to consume based on short run income.		Some part of consumption decisions is made based on the (estimate of) long run disposable income, also called [[permanent income]]. Other consumption decisions are made based on short run disposable income. It is possible to conceptually distinguish the marginal propensity to consume based on permanent income from the marginal propensity to consume based on short run income.

Vipul: Created page with "==Definition== The '''marginal propensity to consume''' (denoted '''MPC''') for an individual or household is a dimensionless quantity that measures the fraction of an additiona..."

2011-07-25T15:08:27Z

Created page with "==Definition== The '''marginal propensity to consume''' (denoted '''MPC''') for an individual or household is a dimensionless quantity that measures the fraction of an additiona..."

New page

==Definition==

The '''marginal propensity to consume''' (denoted '''MPC''') for an individual or household is a dimensionless quantity that measures the fraction of an additional unit of [[disposable income]] (i.e., the residual income after taxes and transfers) that is spent on additional consumption. Note that the marginal propensity to consume may not be a constant but may itself vary based on the level of disposable income.

The marginal propensity to consume is a measure of [[defining ingredient::induced consumption]] -- the component of consumption that is ''induced'' by changes in one's disposable income. This is in contrast with [[autonomous consumption]] (also called exogenous consumption) which is the component of consumption that is relatively unaffected by income levels and is undertaken even when income levels are close to zero.

===Differential definition===

This definition measures the marginal propensity to consume ''at'' a given level of disposable income, and is defined as the derivative of consumption with respect to disposable income. If <math>Y</math> denotes disposable income and <math>C</math> denotes the total money spent on consumption, the marginal propensity to consume is given by:

<math>\operatorname{MPC} = \frac{dC}{dY}</math>

Note that the value may not be a constant but may depend on the level of <math>Y</math>.

===Interval definition===

This definition measures the marginal propensity to consume ''between'' two levels of disposable income, and is defined as the ''difference quotient'' of consumption with respect to disposable income. If the consumption level is <math>C_1</math> for a disposable income of <math>Y_1</math> and is <math>C_2</math> for a disposable income of <math>Y_2</math>, the marginal propensity to consume is given by:

<math>\operatorname{MPC} = \frac{C_2 - C_1}{Y_2 - Y_1}</math>

The two definitions are related in that the derivative is a limit of a difference quotient, so as <math>Y_2 \to Y_1</math>, we obtain the marginal propensity to consume at <math>Y_1</math>.

==Related notions==

* [[Marginal propensity to save]], denoted '''MPS''', is defined as <math>1 - MPC</math>, and is the fraction of additional disposable income allocated to additional savings.

==Short run versus long run==

Some part of consumption decisions is made based on the (estimate of) long run disposable income, also called [[permanent income]]. Other consumption decisions are made based on short run disposable income. It is possible to conceptually distinguish the marginal propensity to consume based on permanent income from the marginal propensity to consume based on short run income.