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CBSE 2016 Class 12 Economics Delhi Set-1

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Question : 7
Total: 18
Distinguish between marginal propensity to consume and average propensity to consume. Give a numerical example.
Solution:  
 Marginal Propensity to Consume  Average Propensity to Consume
 (i) The ratio of change in consumption (∆C) due to change in income (∆Y) is called marginal propensity to consume.  The ratio of total consumption expenditure to total income is called average propensity to consume.
 ‌ (ii) ‌MPC=∆C∕∆Y  APC=C∕Y
  (iii) MPC is always greater than zero but less than 1.   APC can be greater or less than 1 but can never be zero because at zero income, survival needs minimum consumption.
 (iv) MPC falls more rapidly with rise in income.  APC falls as income rises.
 (v) Eg - if income of a country increases from ₹5000 crores to ₹5500 crores, consumption expenditure goes up from ₹ 4000 crores to ₹4300 crores, then :
MPC =∆C∕∆Y=300∕ 500=3∕5=0.6 or 60 paise. 		 Eg - Aggregate income of the economy =₹ 5000 crores and agrregate consumption is ₹ 4500 crores, then :
‌APC=C∕Y=4500∕ 5000=0.90‌ or ‌90%
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