The consumption schedule in the diagram below indicates that:
A) consumers will maximize their satisfaction where the consumption schedule and 45° 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° 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 initially shows that as income increases, consumption also increases. However, at a certain point, consumption levels off and starts to fall below income. This means that initially, consumers are spending more than their income, but eventually, they start saving some of their income. This is shown by the downward slope of the consumption schedule after a certain level of income. Therefore, choice B is correct. Choices A and C are incorrect because there is no information in the diagram to suggest that consumers will maximize their satisfaction at the point where the consumption schedule intersects the 45° line, or that the MPC falls as income increases. Choice D is also incorrect because the consumption schedule shows that households consume more than they earn at lower levels of income, and less than they earn at higher levels of income.

The Consumption Schedule in the Diagram Below Indicates That