If You Buy 10% More Compact Discs in Response to a 20

question 125

Multiple Choice

If you buy 10% more compact discs in response to a 20% increase in income,your income elasticity for compact discs is _____.

• A)0.5
• B)1.0
• C)2.0
• D)0.0

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Definitions:

MPC

Marginal Propensity to Consume refers to the fraction of any additional income that is used for consumption purposes.

Consumption

The act of households utilizing goods and services.

Disposable Income

The sum of funds that families can allocate to expenditure and savings once they've paid their income taxes.

MPC

The marginal propensity to consume, which represents the proportion of an increase in income that is spent on consumption rather than being saved.