If the Marginal Propensity to Consume Were to Increase with No

question 21

Multiple Choice

If the marginal propensity to consume were to increase with no change in the tax rate, then the consumption function drawn on a graph with disposable income on the horizontal axis would

• A) rotate to a steeper line around the same intercept.
• B) rotate to a steeper line and start at a higher intercept.
• C) rotate to a steeper line but start from a lower intercept.
• D) rotate to a flatter line around the same intercept.
• E) shift to a parallel line starting from a higher intercept.

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Definitions:

Marginal Revenue

The additional revenue a firm receives from selling one more unit of a product or service.

Marginal Cost

The expense associated with the next unit produced, emphasizing its role in production decisions and price setting.

Economic Profit

This is the difference between total revenue and total costs, including both explicit and implicit costs.

Monopoly Profit

The excess profits a monopoly firm earns over what it would earn if the industry were perfectly competitive, due to its control over the market supply and pricing.