Question

Given the aggregate consumption function C=0.9y+100 find the mpc and apc and find elasticity of consumption with respect to income show that it equals mpc and apc​

Answer 1

Answer:

sorryx I have done ✅ my worksheet 06

Answer 2

Given:

Aggregate consumption function is given by,

C = 0.9y + 100

To Find:

The MPC (Marginal Propensity to Consume) and APC (Average Propensity to Consume) and the relationship between MPC and APC and elasticity of consumption.

Solution:

We know that slope of a curve gives us the value of MPC, here if we draw the graph of equation C = 0.9y + 100, then slope is 0.9 (we get it by comparing it to equation of straight line y = mx +c )

∴ MPC = 0.9

Now, for calculate APC we have to use formula

$\bold{APC = \frac{C}{y}}$, here, y is income ( y is positive).

At y = 10, C will be 109

∴ $\bold{APC = \frac{109}{10} =10.9}$

At y=20 C will be 118

∴ APC=5.9

For the elasticity of consumption we have to calculate ratio of percentage change in consumption to percentage change in price

∴Percentage change in consumption = $\frac{118-109}{109}\times 100\%$ = $8.25 \%$

and percentage change in price = $\frac{20-10}{10} \times100 \%$ = $100\%$

∴Elasticity of consumption = 0.0825

Now $\frac{MPC}{APC}=\frac{0.9}{10.9} = 0.0825$ = Elasticity of consumption