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CBSE 2016 Class 12 Economics Delhi Set-1

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Question : 15 of 18
Marks: +1, -0
Given Consumption curve, derive saving curve and state the steps taken in the process of derivation. Use diagram.
Solution:  
Consumption + saving is always equal to income because income is either consumed or saved. It implies that consumption and saving curves representing consumption and saving functions are complementary curves.
In part A,CCA, CC curve shows consumption function whereas 45∘45^{\circ} line represents income. CC curve intersects 45∘45^{\circ} line at point BB at which BR=ORB R=O R i.e.,.consumption = income. Point BB is the break even point showing zero saving. It states that saving curve must intersect XX-axis at the same income level where consumption curve and 45∘45^{\circ} line intersects. Left of point B is negative saving and to the right of point BB is positive saving.
In part BB, we derive saving function in the form of saving curve. In part AA, the amount of saving is the vertical distance between CC curve and 45∘45^{\circ} line. By plotting, the vertical distances of saving/dissaving and by joining them, we derive a saving curve. In part AA the vertical distance OCO C (dissaving) is plotted as OS1\text{OS}_1 below XX-axis in part-B. At OR level of income in Part A, vertical distance at point BB is shown as point B1B 1 on XX-axis in lower part of figure is nil. LM of part AA is shown as L1M1L_1 M_1 in part-B. By joining points S,B1S, B_1 and L1L_1 in lower segment, we get saving curve. Thus saving curve is derived from consumption curve.
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