Question

Given saving curve, derive consumption curve and state the steps in doing so. Use diagram.

Answer 1

In the following figure, given is the supply curve respensted by SS curve $-\overline{C}$ represents negative savings. Point B is break even point where $Y=C\&S=O$. The following are the steps of deriving consumption curve from saving curve.

Step 1 : On the given Saving curve SS, take $OS=OC$

Step 2: From point B draw a perpendicular meeting ${545}^{\circ }$ line at point A .

Step 3: By joining the points C and A and extending the line to C, we derive the straight upward slopping consumption curve.

Step 4: CC is the required consumption curve.