The goods market - The Demand for Goods - Consumption (C)
3 important questions on The goods market - The Demand for Goods - Consumption (C)
What is disposable income (YD)?
Disposable income (YD)(=besteedbaar inkomen), is the income that remains once consumers have paid taxes and received transfers from the government. C=C(YD )
(+) -> means: positive relation. When C(YD) goes up -> C goes up.
What are the 2 parameters in the consumption function?
linear relation: C=c0+c1 (YD)
- c1 is called the
(marginal) propensity(=neiging, tendens) to consume, or the effect of an additional dollar of disposable income on consumption. - c0 is the intercept of the consumption function. Dat spenderen mensen ongeacht hun inkomen, de noodzakelijk dingen zeg maar.
Disposable income is given by: YD≡Y-T (T=taxes)
What is the relation of C and YD (think of the lineair l
Consumption increases with disposable income, but less than one for one (dus 1 euro meer YD is niet 1 euro meer C, maar minder dan 1)
A lower value of c0will shift the entire line down.
A lower value of c0will shift the entire line down.
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