Definition of Marginal Propensity to Consume (MPC) is: 

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  1. \(\frac{C}{Y}\)
  2. \(\frac{\Delta C}{ \Delta Y}\)
  3. \(\frac{S}{ Y}\)
  4. \(\frac{\Delta S}{ \Delta Y}\)

Answer (Detailed Solution Below)

Option 2 : \(\frac{\Delta C}{ \Delta Y}\)
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Detailed Solution

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The correct answer is \(\Delta C/\Delta Y\).

Key Points

  •  Marginal propensity to consume refers to the change in consumption with respect to the change in income.
  • When there is an increase in income it reflects in better purchasing power of a consumer.
  • The change in income not only affects consumption but also induces changes in savings.
  • The proportion of consumption depends upon the income levels and corresponding necessities of the consumer.
  • It is used widely in economics to calculate the required additional production for the increased demand(consumption).

Additional Information

  • The marginal propensity to consume is equal to ΔC / ΔY, where ΔC is the change in consumption, and ΔY is the change in income. If consumption increases by 80 cents for each additional dollar of income, then MPC is equal to 0.8 / 1 = 0.8.

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