Q.Read the following statements : Assertion (A) and Reason (R). Choose the correct alternative given below. Assertion (A) : Rich people have lower Marginal Propensity to Consume (MPC) as compared to poor people. Reason (R) : Consumption curve makes an intercept on the y-axis at a point above the origin. Alternatives :

Assertion (A) states that rich people have a lower Marginal Propensity to Consume (MPC) compared to poor people. This is true because as income increases, the proportion of additional income spent on consumption tends to decrease. Rich individuals have already satisfied most of their needs and wants, so a larger portion of any extra income is saved rather than consumed. Poor individuals, conversely, have many unmet needs, leading them to spend a larger proportion of any additional income on consumption.

Reason (R) states that the consumption curve makes an intercept on the y-axis at a point above the origin. This is also true. The y-intercept represents autonomous consumption, which is the minimum level of consumption that occurs even when income is zero. People must consume a basic amount to survive, drawing on past savings or borrowing if necessary. …

In macroeconomics, understanding how individuals and households allocate their income between consumption and saving is fundamental. Two key concepts that help us analyze this are the Marginal Propensity to Consume (MPC) and the Consumption Curve. Let's break down each statement to see how they relate.

First, let's consider the Assertion (A): Rich people have lower Marginal Propensity to Consume (MPC) as compared to poor people.

The Marginal Propensity to Consume (MPC) refers to the proportion of an additional unit of income that an individual or household chooses to spend on consumption. In simpler terms, if your income increases by a certain amount, MPC tells you what fraction of that extra income you will spend, and what fraction you will save.

• For poor people: When a poor person receives an additional unit of income, they typically have many unmet basic needs—food, clothing, shelter, basic healthcare. Therefore, a large portion, if not all, of this additional income will likely be spent on fulfilling these immediate necessities. This means their Marginal Propensity to Consume tends to be high, often close to one.
• For rich people: In contrast, rich people have generally already satisfied their basic needs and often many of their luxury desires. If a rich person receives an additional unit of income, they are less likely to spend a large proportion of it on immediate consumption. Instead, they might save a larger portion, invest it, or use it for future consumption, as their marginal utility from consuming more basic goods is relatively low. This leads to a lower Marginal Propensity to Consume for richer individuals.

Therefore, Assertion (A) is a true statement.

Next, let's examine the Reason (R): Consumption curve makes an intercept on the y-axis at a point above the origin.

The consumption curve is a graphical representation that shows the relationship between total consumption expenditure and total income in an economy. Income is typically plotted on the horizontal (x) axis, and consumption expenditure on the vertical (y) axis.

The point where the consumption curve intersects the vertical (y) axis is known as the y-intercept. This intercept represents the level of consumption that occurs even when an individual's or an economy's income is zero. This is called autonomous consumption.

• Even if someone has no current income, they still need to consume to survive. They might do this by drawing on past savings, borrowing money, or receiving support from family or government.
• Since consumption cannot be zero when income is zero (people need food, shelter, etc.), the consumption curve must start at a point above the origin on the y-axis, indicating a positive level of autonomous consumption.

Therefore, Reason (R) is also a true statement.

Now, we need to determine if Reason (R) is the correct explanation for Assertion (A). …