Question

Define 'average propensity to consume' and 'marginal propensity to consume'. How are they calculated?

Answer 1

APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income.

APC= Consumption/ Income = C/Y

Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income. It is the ratio between the change in income and correspondent change in consumption

MPC= change in consumption/ change in income= ^C/^Y