Question

Distinguish between Average Propensity to Consume and Marginal Propensity to Consume.

Answer 1

Difference between APC and MPC:

(a) Total consumption divided by total income is APC and change in consumption by change in income is MPC.

(b) When income increases both APC and MPC falls but the decline in MPC is more than the decline in APC.

(c) The value of APC can be greater than 1 but MPC can never be greater than one.