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Question
Answer the following question.
Which of the two, average propensity to consume or average propensity to save, can be negative, and why?
Solution
Average Propensity to Save can be negative. It is negative in the situation when savings are negative or when consumption is greater than income ( When past savings are used for consumption). Average Propensity to Consume can never be negative because is the ratio of consumption and income and consumption can never be negative.
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| Income (Rs) | Consumption expenditure (Rs) | Marginal propensity to save | Average propensity to save |
| 0 | 80 | ||
| 100 | 140 | 0.4 | ....... |
| 200 | ........ | ...... | 0 |
| ....... | 240 | ........ | 0.20 |
| ......... | 260 | 0.8 | 0.35 |
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