Justify the following statement with valid argument : 'At higher levels of income people generally have lower Marginal Propensity to Consume (MPC).'

Question

Accepted Answer

At higher levels of income, people tend to save a larger proportion of their additional income, which means their Marginal Propensity to Consume (MPC) is lower. This is because basic needs are already met at higher income levels, so additional income is channelled more towards savings rather than consumption. The consumption function curve becomes flatter as income rises, indicating a declining MPC.