Distinguish between Marginal Propensity to Consume and Average Propens

Distinguish between Marginal Propensity to Consume and Average Propensity to Consume. Give a numerical example.

Answer»

Marginal Propensity to Consume is the ratio of change in consumption expenditure (△C) to change in total income (△Y).

Suppose △C = 70 and △Y = 100

Then, MPC = 70/100= 0.7

Average Propensity to Consume is the ratio of total consumption expenditure (C) to total income (Y).

Suppose C = 80 and Y = 100

APC = 80/100 = 0.8

Average Propensity to Consume	Marginal propensity to consume
Average propensity to Consume refers to the ratio of Consumption Expenditure . to the corresponding level of income.	Marginal propensity to consume refers to the ratio of change in Consumption Expenditure (△C) to change in total income (△Y).
APC = Consumption (C)/Income (Y)	MPC = Change in Consumption (△C)/Change in Income (△Y)
It can be greater than 1, equal to 1 or less than 1.	Its value lies between 0 and 1.
It can never be zero.	Its value can be zero.
Ex. Supposing at a given level of income of 300 crore consumption is 250 crore then APC will be 250/300 which is equal to 0.83.	Er, Suppose income increases by 100 crore and consumption increases by 50 crore then MPC = 50/100 which is equal to 0.5.