What is consumption and disposable income?

Math problem: an economist wants to estimate a line that relates personal comsumption and expenditures (C) and disposable income (I). Both C and I are in thousands. (a)draw a scatter diagram (b) find a line that fits the data (c) interpret the slope. the slope of this line is called the marginal propensity to consume. (d) predict the consumption of a family whose disposable income is 42,000


I - 20, 20, 18, 27, 36, 37, 45, 50


C - 16,18,13,21,27,26,36,39





if ANYONE can please help me solve this math problem. I am a tutor and i need to help my student and i cant figure it out for myself...and assistance would be appreciated.

What is consumption and disposable income?
. I - 20, 20, 18, 27, 36, 37, 45, 50


C - 16, 18, 13, 21, 27, 26, 36, 39





^ C ($ x 1000)


- 40


|.................... ...................... .................... ....................... •


|.................... ...................... .................... ..................˚


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-30


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|................... ....................... .................... .•


|................... ....................... .................... ...˚


|................... ....................... ......•


-20


|................... .................˚


|................... .................˚


|................... .............•


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-10


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|


|


|________|________|____ ___|________|____ ___|__%26gt;


................ 10.............. 20 ............. 30 .............40 ..............50


......................................... I ($ x 1000)





This is something like what your scattergram should look like





Then you find a line using a linear regression on your calculator





C = A + BI





And then you put in 42 (for 42 000) and out comes your prediction for C in thousands of dollars
Reply:Keep in mind this is my own interpretation of the question. It seems that they are trying to find a relationship between C and I. I am going to assume that the independent variable will be I (income) and the dependent variable is C (consumption).





A) draw the positive quadrant with I on the horizontal axis (x-axis) and C on the vertical axis (y-axis). Then just plot the points as co-ordinates (I,C).





eg: the first point, would be (20,16), the second point (20,18) etc.. This will be your scatter plot





B) To find a line that fits the data, you can use a simple method of connecting the first (lowest) point and last (highest) point. With these points, you can find the equation of the line in the form of C = aI +b where a is the slope of the line and b is the vertical intercept. I'll assume you know how to do this.





C) the slope determines how much MORE you will consume if your income increases. If it is positive, then you'll obviously consume more if your income increases. The value just determines by how much more your will consume.





d) substitute the value of 42 (because all the points are in thousands) into the equation of the line you found in (B) to solve for C.





Hope this helps!