What Is the Marginal Propensity To Consume?

Marginal consumption propensity is the ratio of the increase or decrease in consumption to the increase or decrease in disposable income, which indicates the change in consumption every time a unit of disposable income is increased or decreased. It is a concept corresponding to the "marginal saving tendency". Since the sum of consumption propensity and savings propensity is equal to 1, the sum of marginal consumption propensity and marginal savings propensity is also constant at 1. The average propensity to consume can tell how disposable income is distributed between savings and consumption at different times, but it is not known how any known change in income levels is distributed between changes in consumption and savings. It can be observed through the marginal consumption tendency. In Keynes's view, when income increases, people only use a small proportion of their income for consumer expenditures, while using a larger proportion of their savings for savings, there is a law of diminishing marginal consumption propensity. ^[1]

Marginal propensity to consume

Marginal Consumption Tendency and

Herd mentality marginal consumption tendency

Marginal Consumption Tendency: The ratio between increased consumption and increased income, that is, the ratio of the increased consumption part of an additional unit of income, expressed by the formula: MPC = C / Y.

Marginal propensity to consume = The slope of the consumption function = The amount by which consumption spending changes when disposable income changes.

For example, income increased to 3 trillion yuan (an increase of 1 trillion yuan), consumption increased to 2 trillion yuan (an increase of 0.5 trillion yuan), and the marginal propensity to consume was 0.5 (0.5 / 1).