Question

What is meant by 'propensity to consume'? Discuss the two types of propensities to consume.

Answer 1

Propensity to consume refers to the tendency to consume with the given amount of income in the economy. two type of propensities are

• APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income.
  
• Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income.