Chapter 5: Problem 10

When income levels are very low, \(\mathrm{C}\) is \((\mathrm{LO3})\) a) zero b) lower than income c) higher than income

Short Answer

Expert verified

When income levels are very low, consumption (C) is most likely lower than income, as described in Option b. This allows for essential consumption while staying within the limits of their income, thus effectively managing their scarce resources. \(C < \text{Income}\)

Step by step solution

Understanding the Relationship

When the income levels are very low, the consumption's relationship to the income level will be crucial as people's ability to consume goods and services directly depends on their income levels. Let's check each given option and see which statement best describes this relationship.

Option a: Consumption is zero

If the consumption is zero, it implies that people do not consume any goods or services even if they have some income. This scenario is unlikely as there is a basic need for people to consume goods and services for their survival, like food, shelter, etc., even when their income levels are low.

Option b: Consumption is lower than income

In this case, people are consuming goods and services within the range of their income. Since their income is very low, consumption will also be low. This scenario is plausible, as people might be cautious with their spending and focus on essential items, which are less than their total income.

Option c: Consumption is higher than income

If consumption is higher than income, when income is very low, it implies that people are either borrowing money to consume goods and services or spending their savings (if any). This scenario might be possible in some instances, but it is not a sustainable strategy to maintain consumption levels higher than income, especially when the income is very low.

Conclusion

Among the given options, Option b (Consumption is lower than income) seems to be the most reasonable description of the relationship between consumption and income when income levels are very low. It balances the need for essential consumption while staying within the limits of their income, allowing people to manage their scarce resources most effectively.