ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The formula for average propensity to consume is as follows: Average Propensity to Consume = Consumption/Total Disposable Income. Thus, abbreviated as APC = C / DI.

Detailed explanation-2: -Average propensity to consume (APC) measures the percentage of income that is spent rather than saved.

Detailed explanation-3: -According to Keynes´s consumption and saving (S) functions and their relation to disposable income, income consists of consumption expenditure and saved income: Y=C+S=Ca+cY-Ca+sY, where s represents marginal propensity to save (MPS). By dividing the equation by income we get that 1=APC+APS. Thus APC=1-APS.

Detailed explanation-4: -APC (Average Propensity to Consume) is a measure of how much of their disposable income households typically spend, while MPC (Marginal Propensity to Consume) is the amount by which consumption changes as disposable income changes by a certain amount.

Detailed explanation-5: -Average Propensity to Consume (APC) refers to the ratio of consumption expenditure to the corresponding level to consume. At break even point, consumption is equal to national income. So, APC = 1.