When consumer consumes a part of change in income, which of the following is true?
When consumer consumes a part of change in income, which of the following is true?
Solution
Option 1 -> MPC > 1 means consuming more than the entire change in income, not just a part.
Option 2 -> MPC < 1 includes zero and negative values, which doesn't accurately represent consuming 'a part'.
Option 3 -> MPC = 0 means no consumption from the income change, contradicting 'consumes a part'.
Option 4 -> 0 < MPC < 1 correctly represents consuming some portion (but not all) of the income change.
Hence, 0 < MPC < 1 -> When a consumer consumes only 'a part' of the change in income, it means they consume more than zero but less than the entire change. Marginal Propensity to Consume (MPC) = ΔC/ΔY, where ΔC is change in consumption and ΔY is change in income. If only a part is consumed, then 0 < ΔC < ΔY, which gives us 0 < MPC < 1. The remaining part of income change is saved (MPS = 1 - MPC). -> correct
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