Which of the following are important characteristics of the consumption function?
A. Consumption increases as income increases.
B. Consumption is negative even if income is zero.
C. When income increases, consumption decreases, but the decrease in consumption is less than the increase in income.
D. Consumption decreases as income increases.
E. Consumption is positive even if income is zero.
Answer (2)
The key characteristic of the consumption function is that consumption typically increases as income increases. Some options provided were inaccurate in reflecting established economic theory. Therefore, the correct choice is A: Consumption increases as income increases.
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The consumption function is a concept in economics that describes the relationship between total consumption and gross national income. It's an essential part of understanding how economic activity functions. Key characteristics of the consumption function include:
A. Consumption increases as income increases.
This is a fundamental characteristic of the consumption function. As income increases, individuals have more money available, leading to increased consumption. This relationship is typically represented by an upward-sloping line in the consumption-income space, showing that higher income leads to higher consumption.
E. Consumption is positive even if income is zero.
Even when income is zero, consumption will often remain positive. This is because individuals tend to consume basic necessities regardless of their income levels, often financed by savings, borrowing, or social assistance programs. This situation reflects the idea of 'autonomous consumption.'
Let's briefly address the other options:
B. Consumption is negative even if income is zero.
This statement is incorrect. Consumption cannot be negative; even when income is zero, as mentioned earlier, basic consumption usually continues due to necessities.
C. When income increases, consumption decreases, but the decrease in consumption is less than the increase in income.
This description contradicts the fundamental relationship between income and consumption, where typically, consumption increases with income rather than decreases.
D. Consumption decreases as income increases.
This is not a typical or observed characteristic of a consumption function. Normally, consumption will increase when income increases, not decrease.
In conclusion, the correct options that align with the characteristics of the consumption function are A and E .
