Marginal Propensity to Consume
Abbreviation
MPC
The Marginal Propensity to Consume (MPC) is a metric that measure the proportion of additional income that an individual will use for consumption.
Illustrative Example of MPC
- If a person receives a $1,000 raise, the MPC measure how much of that $1,000 they will spend vs. save.
- If they spend $800 and save $200, the MPC is .8 (800/1,000)
- If they spend $300 and save $700, the MPC is .3 (300/1,000)
MPC Generalities
- Those with high incomes/wealth will have a lower MPC - they generally already have what they need
- Those with lower incomes/wealth will have a higher MPC - the money is more needed by them
Examples
- The Elderly have a high propensity to consume (They are typically on fixed incomes)
- The Disable have a high propensity to consume (They are typically on fixed incomes)