Question

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.

Answer 1

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