Suppose John’s income increases from Rs.100 to Rs.200. At Rs.100, he saved Rs.10 and spent the remaining on the purchase of goods and services. At Rs.200, he consumes goods and services worth Rs. 160. What is his Marginal Propensity to consume

Marginal Propensity to Consume (MPC) is the increase in consumer spending due to an increase in income. This can be calculated using the formula:

MPC = ΔC / ΔY

Where: ΔC is the change in consumption, and ΔY is the change in income.

In John's case:

His initial income (Y1) was Rs.100, and he spent Rs.90 on goods and services (C1 = Y1 - savings = 100 - 10 = 90).

When his income increased to Rs.200 (Y2), his consumption (C2) also increased to Rs.160.

So, the change in consumption (ΔC) is C2 - C1 = 160 - 90 = Rs.70. And, the change in income (ΔY) is Y2 - Y1 = 200 - 100 = Rs.100.

Substituting these values into the formula, we get:

MPC = ΔC / ΔY = 70 / 100 = 0.7

So, John's Marginal Propensity to Consume is 0.7. This means that for each additional rupee of income he receives, he will spend 70 paise on consumption.