Definition – What is the marginal propensity to consume?
MPC is the amount that consumption will increase (or decrease) for every increase (or decrease) in disposable income.
When income increases, those who benefit from it have a choice to either save or spend. If they spend (instead of save) 80% of their increase in income, their MPC would be 0.8 (and their MPS, marginal propensity to save, would be 0.2).
Formula – How to calculate marginal propensity to consume
Marginal Propensity to Consume = Change in Consumption / Change in Income
Change in consumption is $900 in the same period where change in income is $1,500.
MPC = $900 / $1,500 = 0.60
Therefore, Marginal Propensity to Consume is 0.60.
Sources and more resources
- Wikipedia – Marginal Propensity to Consume – An explanation of MPC and how it is calculated.
- Khan Academy – MPC and multiplier – Part of a larger course on macroeconomics, this video describes the MPC.
- Houston Chronicle – The relationship between Marginal Propensity to Consume & Marginal Propensity to Save – A quick article on how MPC and MPS are linked.
- ACDCLeadership (YouTube) – Macro 3.9 – Multiplier Effect, MPC, and MPS (AP Economics) – An overview video of MPC.