chapter 4 pt 2

Question 1

define MPS and MPC and their formulas

Answer 1

A person’s tendency (or propensity to consume or save each extra dollar they earn can be viewed as:
MPC - the proportion of each extra dollar of income that goes into consumption
MPS - the proportion of each extra dollar of income that is saved
MPC=changes in consumption/ changes in income
MPS= changes in savings/ changes in income

MPS+MPC=1 since every dollar of income earned must be either spent or saved

Question 2

outline how age influences saving and dissaving in young, working aged and retired ppl

Answer 2

young - tend to receive lower level of income because they lack skills, experience and education thus saving very little
working age - in middle age, incomes rise and they will consume a smaller proportion of their income as they start saving for retirement
retirement - ppl no longer earn income from their labour, they consume out of their past savings and wealth or rely on government’s age pension

Question 3

using your knowledge of how age influences saving and dissavig explain the life cycle theory of consumption

Answer 3

ind’s with higher income have a lower PAC compared to lower income earners. (Lower income earners must use a higher proportion of their income on daily needs). Thus as individuals grow older, their APC falls (as their income rises) and then subsequently rises again after retirement

Question 4

what are the factors affecting individual consumer choices

Answer 4

level of income
the price of G&S
price of substitutes and complementary goods
consumer taste and preferences
advertising

Question 5

sources of income ie factors of production ie the types of income u get from diff factors of production

Answer 5

wages from labour - main source. form of wages or salaries. includes fringe benefits, super and worker’s compensation pay
rent from land - ppl own and rent it to ppl and get income eg investment properties
interest from capital - ownership of capital occurs indirectly through superannuation and other investment funds through ownership of shares/savings accounts or gov bonds
profit from entrepreneurial skills

Question 6

outline social welfare as form of income

Answer 6

social security/ social welfare/ transfer payments:
age pension - for ppl over 67 years and retired
parenting payment - for primary carers of growing children
jobseeker payment - ppl 22-67 unable to find work

aim of social welfare: to provide minimum income safety net, allowing consumers to pay for their basic necessities of life. Eg jobseeker payment scheme form March 2020-21, was a temporary subsidy for businesses significantly affected by covid, providing $1500 per eligible employee per fortnight