Marginal propensity consume: How is it calculated?

Marginal propensity to consume may be defined as ratio of the change in consumption to the change in income as the rate of change in the average propensity to consume as income changes. It can be found by dividing an increment in consumption by an increment in income. Symbolically MPC = AC/ |V. For example, if incomes rises, by Rs.200 to 250 and the assumption expenditure increases from Rs. 180 to 220, then (IPC = 40/50 = 0.8 or 80%, The MPC is constant at all levels of income in the table given below.

Characteristics of MPC:

(1) The value of MPC is greater than zero because consumption expenditure must increase with the increase in income MPC is less than one because the whole of increase in income is not consumed. A part of the income is saved. Thus O < MPC < 1. MPC is positive but less than one.

(2) MPC falls with successive increase in income. When community becomes richer, it consumes a smaller' percentage of each increment to its income. It is because of this property MPC curve flatters as it moves from left to right.

(3) MPC of the pour is greater than that of the rich. The rich lives a high standard of living and their wants are fully satisfied that is why their saving increases with the increment of the income. The poor, on the other hand are yet to fulfill their basic needs. That is why they spend larger amount of their income on consumption. That is why MPC of the poor is greater.

(4) In the short period MPC is constant as some of the factors or less stable.

(5) In the case of linear consumption function with posit consumption expenditure at zero income level, MPC remain constant at all levels of income.

(6) In the case of curvilinear consumption function the deg of falling of MPC is greater the APC.

(7) MPC is related to short period while APC is useful in long run analysis. The post Keynesians same to the concur that over the long run APC and MPC are constant. In the short run MPC < APC.