Marginal Utilities & Economic Decisions

Marginal Utilities & Economic Decisions

Marginal Utilities & Economic Decisions

Depending on the amount of income I earn in a month, my finance plan shows that I spend 70% of it and save the rest. I spent 65% of my income last month which shows that I did not utilize all of it as projected. Therefore I saved more. If I won a lottery worth $1000, I would probably spend all of it and part of the lottery money. This is because I need more items than my income can meet, but since now I am not limited to the specific amount of income I get, I will spend more and meet most of my needs at that time. I will probably spend more on the items I had planned; this is by increasing the quantity of the product as well as its quality.

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Another reason why there may be a marginal propensity registered is if the needs of a person increases. An example would be an increase in the school fees of their child especially after graduating to a higher level of learning. The income of a person will remain constant but the school fees increases; this causes a change in the amount that the person spends hence a marginal propensity to consume. Another reason that may cause this change would be change in the cost of living without a consequent change in income earned to cover for the change. This is because one will be forced to spend more on the same commodities they used to consume (McEachern, 2012).

McEachern, W. A. (2012). Economics: A Contemporary Introduction.

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