Explain consumption function with the help of diagram and schedule ?plz note that it is 6 marks q.
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The functional relationship between consumption expenditure and level of disposable income is called Consumption Function.
C = f (Yd)
Where, C is Consumption expenditure
Yd is disposable income
and f is functional relationship between consumption expenditure and disposable income.
The Law of Consumption states that there is a tendency among people not to spend whole of their additional income on consumption, they save a potion of income.
To explain consumption function, economists use two concepts: Average Propensity to Consume and Marginal Propensity to Consume.
APC is the ratio of total consumption to total income. APC = C/Y
MPC is the ratio of change in total consumption to change in total income. MPC = ∆C/∆Y
Consumption expenditure is further divided into two components:
1) Autonomous Consumption Expenditure : It refers to that portion of expenditure that is independent of disposable income.
2) Induced Consumption Expenditure : It refers to that portion of expenditure that is dependent on level of disposable income.
Consumption expenditure is sum of autonomous and induced consumption expenditure.
C = C¯¯¯ + cYd
Y 0 20 40 60 80
C = C¯¯¯ + cYd 20 30 40 50 60 MPC - 0.5 0.5 0.5 0.5
In given fig, AB is consumption curve, it is a upward sloping curve showing positive relation between consumption and disposable income. It does not start from origin. OA is autonomous consumption. C is break even point, at C Consumption = Income. Beyond C, with increase in income, the level of consumption becomes less and before C the level of consumption is more than income.
Regards
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The functional relationship between consumption expenditure and level of disposable income is called Consumption Function.
C = f (Yd)
Where, C is Consumption expenditure
Yd is disposable income
and f is functional relationship between consumption expenditure and disposable income.
The Law of Consumption states that there is a tendency among people not to spend whole of their additional income on consumption, they save a potion of income.
To explain consumption function, economists use two concepts: Average Propensity to Consume and Marginal Propensity to Consume.
APC is the ratio of total consumption to total income. APC = C/Y
MPC is the ratio of change in total consumption to change in total income. MPC = ∆C/∆Y
Consumption expenditure is further divided into two components:
1) Autonomous Consumption Expenditure : It refers to that portion of expenditure that is independent of disposable income.
2) Induced Consumption Expenditure : It refers to that portion of expenditure that is dependent on level of disposable income.
Consumption expenditure is sum of autonomous and induced consumption expenditure.
C = C¯¯¯ + cYd
Y 0 20 40 60 80
C = C¯¯¯ + cYd 20 30 40 50 60 MPC - 0.5 0.5 0.5 0.5
In given fig, AB is consumption curve, it is a upward sloping curve showing positive relation between consumption and disposable income. It does not start from origin. OA is autonomous consumption. C is break even point, at C Consumption = Income. Beyond C, with increase in income, the level of consumption becomes less and before C the level of consumption is more than income.
Regards
HOPE IT HELPS YOU.. PLS MARK ME AS BRAINLIEST..IF U LIKE IT SO FOLLOW ME...
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