part 3 Flashcards
How can we analyze consumption?
Through the consumption function which relates the total consumption expenditure to the level of disposable income of consumers. Statics allow to calculate in what percentage people spend income between food, clothing etc.
How does poor families spend their income according to the consumption function?
They spend most of their income to meet basic needs: food and housing.
If income increases…
people tend to increase their spending on food items in order to eat more and better.
How does the housing spending change when income changes?
Almost remains at the same level.
What is the break even point?
The point in income when families doesn’t save either positively or negatively. When income=consumption.
What does the consumption-income diagram show us?
It correlates consumption with income. Practice in notes!
What does the saving function tell us?
Relates saving with income. Practice in notes!
What is the marginal propensity to save and consume used for?
It’s used for answering the question of what’s the fraction of every additional dollar that families allocate to the savings and consumption.
How do we calculate the marginal propensity to consume?
current consumption sum - previous consumption sum=x
x/1000= marginal propensity to consumption.
