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Questions
Distinguish between marginal propensity to consume and average propensity to consume. Give a numerical example.
Distinguish between Average Propensity to Consume and Marginal Propensity to consume using a numerical example.
Solution
| Marginal Propensity to Consume | Average Propensity to Consume |
| Ratio of change in consumption (ΔC) to change in income (ΔY) | Ratio of consumption expenditure (C) to level of income (Y) |
|
Example: ΔY = Rs500 ΔC = Rs100 MPC = c = ΔC/ΔY = 100/500 = 0.2 |
Example: Y = Rs1,200 C = Rs900 APC = C/Y = 900/1200 = 0.75 |
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