Asked in
Economics
Algebra
Colleges and Universities

If the marginal propensity of consumption begins to decline what will happen to the average propensity of consumption?

Answer

User Avatar
Wiki User
September 12, 2011 9:34PM

If the marginal (per unit) consumption goes down, then the average consumption will also go down because the average is a function of each unit's individual value.

In other words, if the marginal perpensity to consume for the past 3 months was .2 each month, and for the next month it went down to .1, then your average would be:

Month 1 Avg = .2

Month 2 Avg = .2 (.2+.2/2)

Month 3 Avg = .2 (.2+.2+.2/3)

Month 4 Avg = .175 (.2+.2+.2+.1/4)