The consumption schedule in the diagram below indicates that:
A)consumers will maximize their satisfaction where the consumption schedule and 45$\degree$line intersect.
B)up to a point consumption exceeds income, but then falls below income.
C)the MPC falls as income increases.
D)households consume as much as they earn.

Question

The consumption schedule in the diagram below indicates that: 
A)consumers will maximize their satisfaction where the consumption schedule and 45$\degree$line intersect. 
B)up to a point consumption exceeds income, but then falls below income. 
C)the MPC falls as income increases. 
D)households consume as much as they earn.

Quizplus · Accepted Answer

The consumption schedule starts below the 45-degree line, indicating that at lower levels of income, consumption exceeds income (i.e. households might be using credit or savings to fuel their spending). As income increases, consumption also increases but at a slower rate, eventually falling below income. This suggests that households are saving some portion of their income at higher levels of income. Thus, option B correctly describes the consumption behavior reflected in the graph. Option A is incorrect because consumers may not necessarily maximize satisfaction at the point where the consumption schedule intersects the 45-degree line. Option C is incorrect because the MPC (marginal propensity to consume) is not shown on the graph and may not necessarily decline as income increases. Option D is also incorrect because the consumption schedule starts below the 45-degree line, indicating that households consume more than they earn at lower levels of income.

The Consumption Schedule in the Diagram Below Indicates That °\degree° Line Intersect

The Consumption Schedule in the Diagram Below Indicates That $\degree$ Line Intersect