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Differentiate between the average propensity to consume and the marginal propensity to consume. |
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Answer» Propensity to consume or consumption function expresses the function relationship between total consumption and total income. It refers to the consumption expenditure at various levels of income. The consumption function has two technical attributes or properties which are Average propensity to consume and Marginal propensity to consume. First, APC refers to the ratio of absolute consumption absolute income at a particular point of time. On the other hand MP represents the ratio of change in consumption to change in income; MPC is the rate of change in APC. As income rises both APC and MPC declines, but I lie decline in MPC is more than the decline in APC, as income falls both APC and MPC rises but APC rises at a slower, rate than MPC |
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