When consumer consumes a part of change in income, which of the following is true?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 0 < MPC < 1
The Marginal Propensity to Consume (MPC) is the ratio of a change in consumption (ΔC) to a change in income (ΔY).
MPC = ΔC / ΔY
If a consumer consumes part of the change in income, it means they are not spending all of it, but also not saving all of it. Thus, when a consumer consumes only a part of a change in their income, it means that the change in consumption is a positive amount (so MPC > 0), but it is less than the total change in income (so MPC < 1).