If a Household's Income Falls from $26,000 to $24,000 and Its

question 160

Multiple Choice

If a household's income falls from $26,000 to $24,000 and its savings fall from $1,000 to $500, then its _____

• A) marginal propensity to consume is 0.98.
• B) marginal propensity to consume is 1.33.
• C) marginal propensity to consume is 0.25.
• D) marginal propensity to save is 0.02.
• E) marginal propensity to save is 0.25.

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Definitions:

Price-Elasticity Coefficient

A measure indicating the responsiveness of the quantity demanded or supplied of a good to a change in its price.

Equal To Zero

A state or condition where a value, quantity, or balance is zero.

Price-Elasticity Coefficient

A measure showing the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.

Midpoint Formula

A method used to calculate the elasticity of demand or supply by dividing the percentage change in quantity demanded or supplied by the percentage change in price, using the average of the initial and final values.