Question

Distinguish between APC and MPC.

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 which can be more than one as long as consumption is more than income, i.e. before the break-even point, APC > 1.

MPC i.e. Marginal Propensity to consume refers to the ratio between the percentage change in consumption for every one rupee of change in the income. It cannot be more than one as it is percentage change in consumption when there is some change in the level of income which cannot be more than the change in income.