Question

Distinguish between average propensity to consume and marginal propensity to consume.The value of which of these two can be greater than one and when?

Answer 1

APC refers to Average Propensity to Consume defines the amount of consumption in every 1 rupee of income for all levels of income which can be more than one as long as consumption is more national income, i.e. before the break-even point, APC > 1 whereas 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 that varies from 0 to 1.