Year 11 Topic 2. (1 Viewer)

[triheart]

Hey guys I'm kind of confused with the concept in the topic. The role of consumers in the economy. Can someone dumb it out what is the difference of APC and APS with MPC and MPS. Also I don't understand the part for marginal, 'proportion of each extra dollar of income'.

 

[nerdsforever]

APC: the likelihood of someone spending their money
APS: the likelihood of someone saving their money
MPC: the likelihood of someone spending any EXTRA money they get
MPS: the likelihood of someone saving any EXTRA money they get

marginal, 'proportion of each extra dollar of income': part of extra money.

 

[triheart]

Thanks for the reply but what do you exactly mean EXTRA money can you give me an example?

 

[gnrlies]

Average Propensity to Save is across the entire income . So if you earn 50 000 a year and you save 10 000 then your APS is 20%.

Marginal Propensity to Save refers to the amount that would be saved if you were given an extra dollar. So for example if your income was 50 000 and I gave you one more dollar so that it was 50 001, you might save 50c of that extra dollar so your MPC would be 50%.

The reason a distinction is made is because the two measures will not necessarily be equal (as demonstrated in this example). the APC for 50 000 will be approximately 20% (slightly more), but the MPC will be 50%. The reason for it is because the more you earn usually the less you spend for every dollar you earn. So the first 10 000 will have a high MPC, and the last 10 000 will have a low MPC. They average out to form the APC

 

[triheart]

Oh i get it so extra is the extra money added to your initial income and the proportion of it.
Thanks you really cleared the confusion.