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Marginal propensity to consume is the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it. If someone gets extra income $\\\$1000$ and consumes $\\\$750$ of this additional income their marginal propensity to consume is 0.75. The marginal propensity to consume is higher for poor ...


13

It's called a Principal-Agent Conflict. The RIAA/MPAA act as agents on behalf of the people who actually produce content (and consequently end-consumer value). To maintain relevance to their principals', the RIAA/MPAA must signal value to them (i.e. claim loudly and repeatedly that they do something good for them [regardless of the validity of that claim]). ...


13

Have you ever heard of 'living paycheck to paycheck'? It's another way of saying the person spends all the money they take in. How many millionaires live paycheck to paycheck? How many poor people? The obvious answer is that it will be much more common the lower your income is. At the extreme case, if your income is just dollars per day you will be ...


8

The simple answer is that they don't think they would make as much money. In many countries illegally downloading music or movies is getting harder and harder. The recording industry has achieved this by persuading governments to instruct the ISPs to block torrent sites, torrent proxy sites and sites that list proxy sites completely so no one can access ...


7

This is about the ratio of spending to saving. It does not mean that low-income earners spend more money than high-income earners. It means that low-income earners spend, as opposed to save, a greater proportion of their earnings. Broadly generalising, the reason for this is straightforward: if the bill for a person's rent, food, and other basic expenditure ...


6

What I don't see here is an economic model, however rudimentary, that will allow us not to definitely answer the question but to clarify what are the critical issues. So here's one (totally rudimentary): Consider a work of digitized and mass-commercialized content $x$, like a song, a movie, or a book. Assume that in the short run, demand (desire) for it is ...


6

Heuristically, you can think of the integral as just a sum: $$ \bar{C} = \left( \sum_{i=1}^n C_i^{1-\frac{1}{\epsilon}} \right)^{\frac{\epsilon}{\epsilon - 1}} $$ where $\bar{C}$ is an index of aggregate consumption, and utility is given by $u \left( \bar{C} \right)$. It's easy to check that the marginal rate of substitution between goods $j$ and $k$ is ...


6

Partly your question relates to more general questions like "buy versus rent a house", or "buy versus lease a machine". Under neoclassical assumptions of competition, full information, etc, you can imagine that arbitrage would make these options equivalent for the average of the population (or the representative agent). In practice, ...


6

It's expensive to be poor. Not being able to meaningfully save money for a big purchase means that you lose the potential financial benefits that big purchase might have given you. This is (humorously) illustrated by Terry Pratchett's fictional character Sam Vimes, in the book Men At Arms: The reason that the rich were so rich, Vimes reasoned, was because ...


5

I think I have found the explenation for this. If you look at the wikipdedia page of the economy of Madagascar, it states the following: The standard of living of the Malagasy population has been declining dramatically over the past 25 years. The country has gone from being a net exporter of agricultural products in the 1960s to a net importer since 1971. ...


5

No. And yes. For any set $X$ we have (by definition) $$X^k=\underbrace{X\times\cdots\times X}_{k\text{-times}}=\{(x_1,x_2,\ldots,x_k)\mid x_i\in X\text{ for }i=1,\ldots,k\}.$$ Now let, for example, $m=2$ and $n=3$. Then $$(\mathbb{R}^m\big)^n=(\mathbb{R}^m\big)^n$$ $$=\big(\mathbb{R}^2\big)^3=\Big\{\big((x_1,x_2),(x_3,x_4),(x_5,x_6)\big)\mid (x_1,x_2)\in\...


4

"Durable goods" are a form of utility-generating capital. But they are capital, and what is actually generating utility is the flow of services from them, not them directly. So when we buy a durable good, this is not consumption, it is investment. The phenomenon of uneven intertemporal allocation of purchasing expenses in durable goods is not related to "...


4

tl,dr: I don't see an economic argument for GN marriage, or marriage in general what-so-ever. Frictionless environment All spending on marriage, are nothing more than consumption goods. There is no reason to believe that marriage-related spending have a higher Keynesian multiplier than other consumption categories. As long as this is the case, as @denesp ...


4

Such a "planned" and sought-after re-allocation of given income from consumption to saving, is justified only if the savings in an economy are sub-optimal (or we think so), in the sense of hurting the investment rate, which in turns hurts the (human and physical) capital infrastructure. Think about the extremes: consume all that you produce, save nothing (...


4

Firstly there are services like this in Spotify, and even radio and tv, but it sounds like you are talking about downloading the material with ads in. That causes a problem. Revenue from ads relies on giving many ads to many people. Each time you listen to a song the provider needs to be able to provide a new ad. If you download a song or book with ads ...


4

The multiplier comes from the solution to the goods market equilibrium. In economics everything is endogenous. Increase in income increases consumption that increases demand, demand increases production and production increases income. However, as an echo in a cave the initial increase in income gets 'weaker' as it cycles through the economy and the result 1/...


4

This left me wondering what happens to the wider economy when people decide en masse rather than spending their disposable income on consumer goods/services, to instead pay down their debt and save/invest? tl;dr: Answer depends on the situation/time horizon you are talking about. In long run increasing saving and investment will have no negative impact on ...


4

I am unsure whether this qualifies as economics, but it would be something that might be discussed in business school. Furthermore, the answer is almost entirely engineering. As such, I will do this briefly. Those “old” factories are probably in the same physical space as their current factories. They would need to build new facilities. They would need ...


3

The amount that people save depend on the marginal propensity to consume (MPC), i.e., part of the additional income that a person consume, hence, $1-MPC = savingrate$. Keynes assumed that with increase in income MPC would increase, while neo-Keynesian assumed it to be constant in their analysis. But real data shows that MPC increases with elevation of income ...


3

As stated the Government successfully runs a campaign and people stop spending and start saving. Part of the answer depends on how they save, and the other part depends on how manufacturers react. However it´s worth observing that in most countries only a minority of people can do this - the 60-70% of people in the USA for example who live pay cheque to ...


3

This has to do with the form of the utility function. Assume instead that,say, we had $$U(c,l) = c^{1/2} - \frac{1}{2}l^2$$ Does now $R$ affect the labor-supplied decision? Solve it and explore. Check also the link offered in a comment to your question.


3

The two papers that explored first savings under uncertainty in a two-period setting are Leland, H. E. (1968). Saving and uncertainty: The precautionary demand for saving. The Quarterly Journal of Economics, 82(3), 465-473. and Sandmo, A. (1970). The effect of uncertainty on saving decisions. The Review of Economic Studies, 37(3), 353-360. They both ...


2

I don't think they are "sure", but the weights are based on the American Consumer Expenditure Survey which has a big sample size, a carefully chosen sampling frame, professionally executed sample gathering, and a large team of experts crafting questions and collating the data. How is the CPI market basket determined? The CPI market basket is ...


2

Good question. The answer depends on what exactly you mean by an increase in the money supply and how it is implemented. Because standard monetary policy (ie. open market operations) is implemented through banks, it is functionally quite different from a pure infusion of cash to consumers, which is more the realm of fiscal policy, depending on how it is ...


2

There are two major "qualifiers" to the life-cycle hypothesis (LCH). Both put forth by John Maynard Keynes in "The General Theory of Employment, Interest, and Money." The first is the "precautionary effect," that people save more than the LCH would predict because they are uncertain about their future health, life span, medical bills, etc. A second ...


2

Why Save? "In the long run we are all dead!" - K. Your interesting question brings more questions. Because the short answer is: it depends. Part A - Diagnostic What phase of the business cycle are you in? You first need to make a diagnostic of the shape and timing of the economy your are analyzing. The timing of the business cycle is of prime importance. ...


2

The whole point of saving is that you consume less NOW in order to consume more LATER. That is certainly true at a personal level. Moreover, that is true at a national level. More savings this year means less consumption this year. The danger of savings is that if the money goes under the proverbial "mattress," instead of being invested, less consumption ...


2

Isn't this mostly an issue of pricing at a level where most people feel it's worth paying to avoid the hassle (and potential legal issues) of piracy? Take music singles for example: when I was a teenager (late 90's), a CD single cost £3.99 in the UK. When it became possible to download songs for free that someone else had ripped and uploaded, many people ...


2

Definition: The Aggregate Demand curve shows the combinations of the price level and level of output at which the goods market and assets (money) markets are simultaneously in equilibrium. This definition proves option a) incorrect. The correct option is d)


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