-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $1400?
A) 0.09
B) 0.7
C) 0.91
D) 1.1

Question

-Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the average propensity to consume when real disposable income equals $1400?
A) 0.09 
B) 0.7 
C) 0.91 
D) 1.1

Quizplus · Accepted Answer

The average propensity to consume (APC) is calculated as the ratio of consumption to disposable income. If real disposable income is $1400 and assuming consumption increases with income, an APC of 0.91 means that 91% of the disposable income is being consumed. This is a realistic figure compared to the other options, as it suggests the student spends most of their income, which is typical for a college student's budget constraints. Options A (0.09) and D (1.1) are unrealistic because spending only 9% of income or spending more than 100% of income (without borrowing) are not typical behaviors. Option B (0.7 or 70%) could be plausible but is less than 91%, indicating a lower proportion of income being consumed.

-Refer to the Above Table