EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login
Home Finance Finance Resources Finance Formula Marginal Propensity to Consume Formula
Secondary Sidebar
Finance Blog
  • Finance Formula
    • Skewness Formula
    • Fixed Asset Turnover Ratio Formula
    • Forecasting Formula
    • EBITDA Margin Formula
    • Accounting Ratio Formula
    • Deferred Annuity Formula
    • Capital Investment Formula
    • Ratio Analysis Formula
    • Loss Ratio Formula
    • Benefit-Cost Ratio Formula
    • Probability Distribution Formula
    • Cash Conversion Cycle Formula
    • Accrued Income
    • DCF Excel summary
    • Price to Earning Ratio Formula
    • Current Yield of Bond Formula
    • Earnings Per Share Formula
    • Manufacturing Overhead Formula
    • FCFF Formula
    • Predetermined Overhead Rate Formula
    • Times Interest Earned Ratio Formula
    • Bank Efficiency Ratio Formula
    • Capital Expenditure Formula
    • Expense Ratio Formula
    • WACC Formula
    • Activity Ratio Formula
    • Standard Error Formula
    • Forward Rate Formula
    • Gearing Formula
    • Prime Cost Formula
    • Productivity Formula
    • t-Test Formula
    • Risk Free Rate Formula
    • Tax Shield Formula
    • Sortino Ratio
    • Reserve Ratio Formula
    • Bond Formula
    • Annualized Rate of Return Formula
    • Conditional Probability Formula
    • Financing Formula
    • Future Value of an Annuity Formula
    • For Profit vs Non Profit
    • Deadweight Loss Formula
    • Inflation Formula
    • Amortized Loan Formula
    • Horizontal Analysis Formula
    • Marginal Utility Formula
    • Kurtosis Formula
    • Macaulay Duration Formula
    • Multiplier Formula
    • Modified Duration Formula
    • Operating Leverage Formula
    • Payout Ratio Formula
    • Statistics Formula
    • Sampling Error Formula
    • Trend Analysis Formula
    • Taylor Rule Formula
    • Put Call Parity Formula
    • Annual Return Formula
    • Discount Rate Formula
    • Cash Flow Formula
    • Dilution Formula
    • Attrition Formula
    • Operating Expense Formula
    • Interpolation Formula
    • Annuity Due Formula
    • Bond Yield Formula
    • Turnover Ratio Formula
    • Efficiency Formula
    • Revenue Per Employee
    • Regression Line Formula
    • Yield to Maturity
    • Pearson Correlation Coefficient Formula
    • Accounting Formula
    • Fiscal Deficit Formula
    • Tax Multiplier Formula
    • Efficiency Ratio Formula
    • Demand Elasticity Formula
    • Gross Margin Formula
    • Elasticity Formula
    • Marginal Benefit Formula
    • Depreciation Formula
    • Cost-Benefit Analysis Formula
    • Percentage Change Formula
    • Levered Beta Formula
    • Shares Outstanding Formula
    • Capital Gain Formula
    • Convexity Formula
    • Gross Income Formula
    • Net Exports Formula
    • Producer Surplus Formula
    • Accounting Rate of Return Formula
    • Net Cash Flow Formula
    • Labor Force Participation Rate Formula
    • Moving Average Formula
    • Net Worth Formula
    • Accounting Profit Formula
    • Disposable Income Formula
    • Discount Formula
    • Average Variable Cost Formula
    • Total Variable Cost Formula
    • Product Cost Formula
    • Marginal Product Formula
    • Break-Even Sales Formula
    • Return on Sales Formula
    • Cost of Goods Manufactured Formula
    • Average Fixed Cost Formula
    • Stock Turnover Ratio Formula
    • Operating Ratio Formula
    • Equity Ratio Formula
    • Net Present Value Formula
    • Aggregate Demand Formula
    • Volatility Formula
    • Marginal Product of Labor Formula
    • Z Test Statistics Formula
    • Standard Cost Formula
    • Velocity of Money Formula
    • Invested Capital Formula
    • Unlevered Beta Formula
    • Bank Reconciliation Formula
    • Portfolio Return Formula
    • Central Tendency Formula
    • Accumulated Depreciation Formula
    • Intrinsic Value Formula
    • Decile Formula
    • Vector Cross Product Formula
    • Effective Annual Rate Formula
    • CAGR Formula
    • Mode Formula
    • Arithmetic Mean Formula
    • Real GDP Formula
    • Gini Coefficient Formula
    • Expected Value Formula
    • Price Elasticity of Supply Formula
    • Net Operating Income Formula
    • Profit Percentage Formula
    • GDP Per Capita Formula
    • Altman Z Score
    • Quartile Deviation Formula
    • Return on Capital Employed Formula
    • Consumer Price Index Formula
    • Economic Profit Formula
    • Market Share Formula
    • Real Interest Rate Formula
    • Income Elasticity of Demand Formula
    • Income From Operations Formula
    • Indexation Formula
    • Sales Formula
    • Money Multiplier Formula
    • GDP Deflator Formula
    • Residual Income Formula
    • Effective Interest Rate Formula
    • Coupon Bond Formula
    • Current Account Formula
    • Total Cost Formula
    • Total Expense Ratio Formula
    • Net Sales Formula
    • Percentage Decrease Formula
    • Uncertainty Formula
    • Nominal GDP Formula
    • Effect Size Formula
    • Delta Formula
    • Cost of Sales Formula
    • Fixed Cost Formula
    • Unemployment Rate Formula
    • Present Value of Annuity Formula
    • Compounding Formula
    • Geometric Distribution Formula
    • National Income Formula
    • Accounts Receivables Turnover Formula
    • Integer Formula
    • Ending Inventory Formula
    • Owner's Equity Formula
    • Capacity Utilization Rate Formula
    • Interest Formula
    • Nominal Interest Rate Formula
    • Risk Premium Formula
    • Interest Coverage Ratio Formula
    • Gross Profit Margin Formula
    • Diluted EPS Formula
    • Return On Average Equity Formula
    • Return on Average Assets Formula
    • Working Capital Formula
    • Revenue Per Employee Ratio Formula
    • Capital Employed Formula
    • Rule of 72 Formula
    • Inventory Turnover Ratio Formula
    • Preferred Dividend Formula
    • Retention Ratio Formula
    • Present Value Factor Formula
    • Equity Multiplier Formula
    • Continuous Compounding Formula
    • Return on Assets (ROA) Formula
    • Portfolio Variance Formula
    • Weighted Average Formula
    • Net Working Capital Formula
    • Tax Equivalent Yield Formula
    • Poisson Distribution Formula
    • Current Ratio Formula
    • Debt Ratio Formula
    • Quick Ratio Formula
    • Payback Period Formula
    • Marginal Cost Formula
    • Debt to Income Ratio Formula
    • Book Value Per Share Formula
    • Asset Turnover Ratio Formula
    • Perpetuity Formula
    • Bid-Ask Spread Formula
    • Price to Book Value Formula
    • Capital Gains Yield Formula
    • Net Profit Margin Formula
    • DuPont Formula
    • Bond Pricing Formula
    • Binomial Distribution Formula
    • Sustainable Growth Rate Formula
    • Average Collection Period Formula
    • Net Income Formula
    • CAPM Formula
    • Cost of Goods Sold Formula
    • Economic Order Quantity (EOQ) Formula
    • Amortization Formula
    • Enterprise Value Formula
    • Beta Formula
    • Cost of Equity Formula
    • Rate of Return Formula
    • Revenue Formula
    • Markup Price Formula
    • Cash Flow from Operations Formula
    • Simple Interest Rate Formula
    • Consumer Surplus Formula
    • Asset to Sales Ratio Formula
    • Debt Service Coverage Ratio Formula
    • Capitalization Rate Formula
    • Cost of Debt Formula
    • Straight Line Depreciation Formula
    • Variable Costing Formula
    • Return on Invested Capital Formula
    • Profitability Index Formula
    • Expected Return Formula
    • Cost of Capital Formula
    • Price Index Formula
    • Average Total Cost Formula
    • Discount Factor Formula
    • Price Elasticity Formula
    • Profitability Ratios Formula
    • Financial Leverage Formula
    • Contribution Margin Formula
    • Time Value of Money Formula
    • Balance Sheet Formula
    • Opportunity Cost Formula
    • Current Assets Formula
    • Operating Cycle Formula
    • Operating Margin Formula
    • Bond Equivalent Yield Formula
    • Marginal Revenue Formula
    • Sales Revenue Formula
    • Net Debt Formula
    • Times Interest Earned Formula
    • Gordon Growth Model Formula
    • Required Rate of Return Formula
    • Break Even Analysis Formula
    • Inventory Formula
    • Marginal Propensity to Consume Formula
    • Debt to Asset Ratio Formula
    • Solvency Ratio Formula
    • Interest Expense Formula
    • Leverage Ratio Formula
    • Dividend Payout Ratio Formula
    • Operating Profit Margin Formula
    • PEG Ratio Formula
    • Net Interest Margin Formula
    • Return on Equity (ROE) Formula
    • Overhead Ratio Formula
    • Future Value Formula
    • Days in Inventory Formula
    • Market Capitalization Formula
    • Sharpe Ratio Formula
    • Cash Ratio Formula
    • Retained Earnings Formula
    • Average Rate of Return Formula
    • Current Liabilities Formula
    • Equity Value Formula
    • Relative Risk Reduction Formula
    • Capital Adequacy Ratio Formula
    • Debtor Days Formula
    • DPMO Formula
    • Average Formula
    • Exponential Growth Formula
    • Net Realizable Value Formula
    • Range Formula
    • Shareholders' Equity Formula
    • Sinking Fund Formula
    • Doubling Time Formula
    • Salvage Value Formula
    • Coupon Rate Formula
    • Simple Interest Formula
    • Correlation Formula
    • R - Squared Formula
    • MTBF Formula
    • Change in Net Working Capital Formula
    • Midrange Formula
    • Normal Distribution Formula
    • Mean Formula
    • Population Mean Formula
    • Median Formula
    • Central Limit Theorem Formula
    • Free Cash Flow Formula
    • Stockholder's Equity Formula
    • Acid-Test Ratio Formula
    • Percentile Rank Formula
    • Purchasing Power Parity Formula
    • Harmonic Mean Formula
    • Relative Standard Deviation Formula
    • T Distribution Formula
    • Normalization Formula
    • Operating Income Formula
    • Markup Percentage Formula
    • Relative Change Formula
    • Maturity Value Formula
    • Salary Formula
    • High Low Method
    • Income Statement Formula
    • Market to Book Ratio Formula
    • Dividends Per Share Formula
    • Daily Compound Interest Formula
    • Working Capital Turnover Ratio Formula
    • Weighted Mean Formula
    • Compounded Annual Growth Rate Formula
    • Regression Formula
    • Margin of Error Formula
    • Hypergeometric Distribution Formula
    • Standard Normal Distribution Formula
    • NOPAT Formula
    • Effective Tax Rate Formula
    • Degree of Operating Leverage Formula
    • Outliers Formula
    • Information Ratio Formula
    • Percent Error Formula
    • Hypothesis Testing Formula
    • Activity Based Costing Formula
    • Coverage Ratio Formula
    • Market Risk Premium Formula
    • Degree of Financial Leverage Formula
    • Absorption Costing Formula
    • Future Value of Annuity Due Formula
    • Internal Growth Rate Formula
    • F-Test Formula
    • Covariance Formula
    • Population Variance Formula
    • Coefficient of Determination Formula
    • Adjusted R Squared Formula
    • Compound Interest Formula
    • Gross Profit Formula
    • Accounting Equation Formula
    • Sample Size Formula
    • Sample Standard Deviation Formula
    • Quartile Formula
    • Variance Analysis Formula
    • Correlation Coefficient Formula
    • Z Score Formula
    • Variance Formula
    • Present Value Formula
    • Coefficient of Variation Formula
    • Net Asset Value Formula
    • Profit Margin Formula
    • Holding Period Return Formula
    • Capital Asset Pricing Model Formula
    • Present Value of Annuity Due Formula
    • Depreciation Expenses Formula
    • Annuity Formula
    • Taxable Income Formula
    • Profit Formula
    • Monthly Compound Interest Formula
    • Equity Formula
    • Return on Total Assets Formula
    • Alpha Formula
    • Debt to Equity Ratio Formula
    • EBITDA Formula
    • Accrued Interest Formula
    • Dividend Formula
    • Common Stock Formula
    • Mortgage Formula
    • Growth Rate Formula
    • Absolute Value Formula
  • Accounting fundamentals (700+)
  • Asset Management Tutorial (200+)
  • Banking (44+)
  • Corporate Finance Basics (373+)
  • Credit Research Fundamentals (6+)
  • Economics (88+)
  • Financial Modeling in Excel (17+)
  • Investment Banking Basics (140+)
  • Investment Banking Careers (29+)
  • Trading for dummies (69+)
  • valuation basics (27+)
  • Insurance Resources (14+)
  • Top Finance Books (7+)
Finance Blog Courses
  • Investment Banking Course
  • Investment Banking Online Course
  • Financial Modeling Certification

Marginal Propensity to Consume Formula

By Madhuri ThakurMadhuri Thakur

Marginal Propensity to Consume Formula

Marginal Propensity to Consume Formula (Table of Contents)

  • Marginal Propensity to Consume Formula
  • Examples of Marginal Propensity to Consume Formula (With Excel Template)
  • Marginal Propensity to Consume Formula Calculator

Marginal Propensity to Consume Formula

Marginal propensity to consume can be termed as the metric that captures the quantity change in increase consumption with a change in increase of disposable income of a particular person or a population as a whole.

The formula for Marginal Propensity to Consume –

Marginal Propensity to Consume = ΔC / ΔY

where

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

  • ΔC: Change in Consumption
  • ΔY: Change in Income

Examples of Marginal Propensity to Consume Formula (With Excel Template)

Let’s take an example to understand the calculation of Marginal Propensity to Consume formula in a better manner.

All in One Financial Analyst Bundle(250+ Courses, 40+ Projects)
Financial ModelingInvestment BankingUS GAAPCFA-Level 1 & 2
Equity ResearchM & A ModelingPrivate Equity ModelingForex Trading
Price
View Courses
250+ Online Courses | 40+ Projects | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (86,258 ratings)
You can download this Marginal Propensity to Consume Formula Excel Template here – Marginal Propensity to Consume Formula Excel Template

Marginal Propensity to Consume Formula – Example #1

Peter got a bonus amount of INR 1000 during the end of Financial Year. The rise in income has of INR 1000 has propelled him of extra spending of Goods and services by INR 750 during that month. Calculate the Marginal Propensity of Consumption of Peter.

Marginal Propensity to Consume Example 1-1

Solution:

Marginal Propensity to Consume is calculated using the formula given below

Marginal Propensity to Consume = Amount of increase in Expenditure / Amount of increase in Income

Marginal Propensity to Consume Example 1-2

  • Marginal Propensity to Consume = 750/ 1000
  • Marginal Propensity to Consume = 0.75

Thus, the Marginal propensity of Consume for Peter stands at 0.75.

Marginal Propensity to Consume Formula – Example #2

Borosil India Limited is a glass manufacturing company which manufactures glass products like several utensils which consumer’s uses for their normal livelihood. The number of units sold in 2016, 2017 and 2018 is 4000 units 4500 units and 5000 units. The average income of the consumers increased by 15% and 20% for 2017 and 2018 respectively. Calculate MPC of the average population for 2017 and 2018.

Marginal Propensity to Consume Example 2-1

Solution:

Percentage increase in Expenditure for 2017 is calculated as:

Percentage increase in Expenditure for 2017

  • Percentage increase in Expenditure for 2017 = (4500 – 4000) / 4000
  • Percentage increase in Expenditure for 2017 = 12.5%

Percentage increase in Expenditure for 2018 is calculated as:

Percentage increase in Expenditure for 2018

  • Percentage increase in Expenditure for 2018 = (5000 – 4500) / 4500
  • Percentage increase in Expenditure for 2018 = 11.11%

Marginal Propensity to Consume is calculated using the formula given below

Marginal Propensity to Consume = Percentage increase in Expenditure / Percentage change in income

MPC for the entire population in 2017

MPC for 2017

  • MPC for the entire population in 2017 = 12.5% / 15%
  • MPC for the entire population in 2017 = 0.83

MPC for the entire population in 2018

MPC for 2018

  • MPC for the entire population in 2018 = 11.11%/ 20%
  • MPC for the entire population in 2018 = 0.56

Thus, the Marginal propensity of Consume for the population for Borosil products stands at 0.83 and 0.56 in 2017 and 2018 respectively.

Marginal Propensity to Consume Formula – Example #3

Hindustan Unilever Limited is a soap manufacturing company which manufacturers soap as its Front-line product which consumer’s uses for their normal livelihood. The number of units sold in 2014, 2015 and 2016 is 10,000 units 12,000 units and 15,000 units. The average income of the consumers increased by 25% and 30% for 2015 and 2016 respectively. Calculate MPC of the average population for 2015 and 2016.

Marginal Propensity to Consume Example 3-1

Solution.

Percentage increase in Expenditure for 2015 is calculated as:

Percentage increase for 2015

  • Percentage increase in Expenditure for 2015 = (12000 – 10000) / 10000
  • Percentage increase in Expenditure for 2015 = 20%

Percentage increase in Expenditure for 2016 is calculated as:

Percentage increase for 2016

  • Percentage increase in Expenditure for 2016 = (15000 – 12000) / 12000
  • Percentage increase in Expenditure for 2016 = 25%

Marginal Propensity to Consume is calculated using the formula given below

Marginal Propensity to Consume = Percentage increase in Expenditure / Percentage change in income

MPC for the entire population in 2015

MPC for 2015

  • MPC for the entire population in 2015 = 20% / 25%
  • MPC for the entire population in 2015 = 0.8

MPC for the entire population in 2016

MPC for 2016

  • MPC for the entire population in 2016 = 25% / 30%
  • MPC for the entire population in 2016 = 0.83

Thus, the Marginal propensity of Consume for the population for HUL products stands at 0.8 and 0.83 in 2015 and 2016 respectively.

Explanation

The marginal propensity to consume (MPC) is the percentage of a total increment in consumer expenditure on the consumption of goods and services with a percentage of change in his income. Marginal propensity to consume is a part of the Keynesian macroeconomic theory and the theory is derived from the change in consumption divided by the change in income. MPC is drawn by a consumption line, which is a sloped line created by plotting percentage change in consumption on the vertical “X” axis and with the percentage change in income on the horizontal “X” axis.

Relevance and Uses of Marginal Propensity to Consume Formula

  • Marginal Propensity to Consume formula is widely used as the barometer of consumer spending and extensively used by the Marketing department before launching a particular product or before the Production of a particular production process starts. The forecasting demand of a particular product is being calculated by the average change in income of the entire population along with the change in demand for goods and services.
  • The change in consumer spending is being tracked by the government numbers and it is being published periodically by the Government. However, there are other private Companies who are indulged in analytics, publishes these data which is used as the median for Consumption pattern, consumption sentiments, etc. For example, during recessions, the consumption decreases along with falling of prices of ‘Goods and Services’. The Income level of the general population also takes a downtrend. Thus if the degree of spending falls along with the degree of decrease in income, then the MPC would be 1. Thus, the manufacturing units would lower their production by the same volume as the fall in the income of the Population.
  • In the case of an increase in Spending during the rise in income level of the general population, the degree of increase in expenditure should be aligning with the degree of increase in income. Sometimes the percentage becomes less than 1, which indicates the percentage increase in income is not enough to determine the production process of the manufacturers. In these cases, the actual degree of MPC should be derived from the sample test which would eventually lead to the exact possible demand of the particular product.
  • The consumption pattern is extremely important for the business as there has been a constant evolution of new products due to changing tastes and preferences of the consumers. Thus, it is not always necessary to follow the change of a particular product but to perceive consumption as a whole. For example, Due to a decrease in income level, the consumer might choose product ‘X’ instead of product ‘Y’ due to a lower price of product ‘X’. But on the other hand, a similar trend might follow where most of the consumer is accepting product X instead of product Y. So, the market share of product X is increasing due to its competitive advantage of offering a better deal than Y. Thus, changes in income levels might not be the right cause for the falling market share of product Y.

Marginal Propensity to Consume Formula Calculator

You can use the following Marginal Propensity to Consume Calculator.

Change in Consumption
Change in Income
Marginal Propensity to Consume Formula
 

Marginal Propensity to Consume Formula =
Change in Consumption =
Change in Income
0 = 0
0

Recommended Articles

This has been a guide to Marginal Propensity to Consume formula. Here we discuss How to Calculate Marginal Propensity to Consume along with practical examples. We also provide Marginal Propensity to Consume Calculator with downloadable excel template. You may also look at the following articles to learn more –

  1. Formula for Debt Service Coverage Ratio
  2. Calculation of Net Profit Margin
  3. How to Calculate Marginal Cost Using Formula?
  4. Examples of Net Interest Margin Formula
  5. Marginal Benefit Formula | Calculator with Examples
Popular Course in this category
All in One Financial Analyst Bundle- 250+ Courses, 40+ Projects
  250+ Online Courses |  1000+ Hours |  Verifiable Certificates |  Lifetime Access
4.9
Price

View Course

Related Courses

Investment Banking Course (123 Courses, 25+ Projects)4.9
Investment Banking Course (123 Courses, 25+ Projects)4.8
Financial Modeling Course (7 Courses, 14 Projects)4.7
0 Shares
Share
Tweet
Share
Primary Sidebar
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

ISO 10004:2018 & ISO 9001:2015 Certified

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Financial Modeling Course

3 Statement Model Creation, Revenue Forecasting, Supporting Schedule Building, & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

Download Marginal Propensity to Consume Formula Excel Template

EDUCBA

डाउनलोड Marginal Propensity to Consume Formula Excel Template

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more