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.
|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)|
ΔY = Rs500
ΔC = Rs100
MPC = c = ΔC/ΔY
= 100/500 = 0.2
Y = Rs1,200
C = Rs900
APC = C/Y
= 900/1200 = 0.75
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