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Distinguish Between Marginal Propensity to Consume and Average Propensity to Consume. Give a Numerical Example. - Economics

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Distinguish between marginal propensity to consume and average propensity to consume. Give a numerical example.

Distinguish between Average Propensity to Consume and Marginal Propensity to consume using a numerical example.

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Solution

Marginal Propensity to Consume Average Propensity to Consume
Ratio of change in consumption (ΔC) to change in income (ΔY) Ratio of consumption expenditure (C) to level of income (Y)

Example:

ΔY = Rs500

ΔC = Rs100

MPC = c = ΔC/ΔY

             = 100/500 = 0.2

 Example:

Y = Rs1,200

C = Rs900

APC = C/Y

      = 900/1200 = 0.75

Concept: Consumption Function and Propensity to Save
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