Q.What is Consumption Function ?

An increment in income is either consumed or saved, so MPC + MPS = 1; the answer is (b).

In the consumption and investment functions topic of the Tamil Nadu HSC Commerce syllabus:

• Marginal Propensity to Consume (MPC) = change in consumption ÷ change in income = dC/dY
• Marginal Propensity to Save (MPS) = change in saving ÷ change in income = dS/dY

Because every extra rupee of income is either spent on consumption or set aside as saving, the change in income equals the change in consumption plus the change in saving: …

The marginal propensity to consume (MPC) and the marginal propensity to save (MPS) always sum to 1.

An increase in income (change in Y) is disposed of in only two ways: it is either spent on consumption (change in C) or set aside as saving (change in S). Therefore change in Y = change in C + change in S.

• MPC = change in C / change in Y (the fraction of extra income consumed).
• MPS = change in S / change in Y (the fraction of extra income saved). …

The average propensity to consume (APC) is measured as C divided by Y.

The average propensity to consume is the ratio of total consumption expenditure to total income at a given level of income. It tells us the proportion of income that is consumed.

APC = C / Y, where C = total consumption and Y = total income.

…

APC is consumption divided by income, i.e. C/Y, so option (b) is correct.

The Average Propensity to Consume (APC) measures the proportion of total income (Y) that is devoted to consumption (C):

APC = C / Y

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