Understanding Consumption Functions and Propensity to Consume
Explore the concepts of consumption functions, propensity to consume, average propensity to consume (APC), and marginal propensity to consume (MPC) in economics. Learn about factors influencing the stability of the consumption function and the relationship between income and consumption.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
You are allowed to download the files provided on this website for personal or commercial use, subject to the condition that they are used lawfully. All files are the property of their respective owners.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.
E N D
Presentation Transcript
CONSUMPTION FUNCTION S. Henri Rita Mary Assistant Professor Department of Economics Arul Anandar College Karumathur
Income-consumption. Propensity to consume empirical income-consumption relationship C=f(Y)
Propensity to consume schedule It is a list of current income and current consumption. Propensity to consume schedule (Rs.in Billions) Current Income (Y) Current Consumption (C) 0 4 10 12 20 20 30 28 40 36 50 44
Consumption Curve It shows the nature of the relationship between consumtpion and income. Consumption- dependent variable-X, Income- independent variable -Y
Y Consumtpion (C) C=y C=a+by B O 5 X Income (Y)
TECHNICAL ATTRIBUTES Average Propensity to consume (APC) Marginal Propensity to consume (MPC)
Average Propensity to Consume (APC) Average Propensity to Consume (APC) Refers to the proportion of total disposable income that is devoted to consumption. APC=C/Y 8/10, i.e. 80%
Marginal Propensity to Consume (MPC) Marginal Propensity to Consume (MPC) Ratio of change in consumption consequent upon a change in income. Ratio of change in consumption consequent upon a change in income. MPC= Change in Consumption/Change in Income MPC= Change in Consumption/Change in Income
Schedule of Propensity to Consume Income (Y) Consumption (C) Average Propensity to Consume (APC=C/Y) Marginal Propensity to Consume (MPC= C/ Y) 0 4 - - 10 12 1.2 0.8 20 20 1 0.8 30 28 0.93 0.8 40 36 0.9 0.8 50 44 0.88 0.8
Stability of the Consumption Function Factors influencing Consumption Function Factors influencing Consumption Function Subjective factors or Subjective factors or Endogenous Factors Endogenous Factors Consumption Function Objective factors or Objective factors or Exogenous Factors Exogenous Factors
Measures Redistribution of income Introduction of social security Framing a suitable wage policy Provision of easy credit facilities Provision of rapid urbanisation Adoption of sales promotion activities Emphasis on advertisement Interpersonal comparison for conspcious consumption
