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Question
Distinguish between Average propensity to consume and Marginal propensity to consume.
Solution
Average propensity to consume and Marginal propensity to consume.
| Basis of difference | Average propensity to consume | Marginal propensity to consume |
| Meaning | It shows the ratio of consumption expenditure to the level of income | It refers to the ratio of change in the consumption expenditure to the change in the disposable income |
| Formula | `APC=C/Y` | `MPC=(ΔC)/(ΔY)` |
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|
Consumption expenditure (Rs) |
Savings (Rs) |
Income (Rs) |
Marginal propensity to Consume |
|
100 |
50 |
150 |
|
|
175 |
75 |
……. |
…… |
|
250 |
100 |
……. |
…… |
|
325 |
125 |
……. |
…… |
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| 0 | (-) 12 | |
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