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Question
Complete the following activity to find MPC, MPS, APC and APS, if the expenditure Ec of a person with income I is given as:
Ec = (0.0003)I2 + (0.075)I2
when I = 1000
Solution
Given, EC = (0.0003)I2 + (0.075)I2
We have APC = `E_C/I`
= (0.0003). I + 0.075
At I = 1000,
APC = (0.0003) × 1000 + 0.075
= 0.3 + 0.075
∴ APC = 0.375
Now, MPC = `(d(E_C))/(dI)`
= 2 × (0.0003).1 + 0.075
= (0.0006) × I + 0.075
When I = 1000
MPC = 0.6 + 0.075
= 0.675
At I = 1000, MPS = 1 – MPC
= 1 – 0.675
= 0.325
At I = 1000,
APS = 1 – APC = 1 – 0375
= 0.625
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