The consumption function for an economy is : C = 20 + 0.8Y (assuming amount in ₹ crores). Determine the level of income when average propensity to consume will be one.

Explanation

Average propensity to consume (APC) is 1 at break-even point, i.e. when consumption ( C) = Income (Y)
Putting C = Y in the consumption function, we get :
Y = 20+ 0.8Y
Y= 100
It means, APC will be 1 when the level of income is ₹ 100 crores.
Note: Proof: Consumption at income of ₹ 100 crores will be: C = 20+0.8`xx`100=100.
APC = `("Consumption(C)")/("Income(Y)")=(100)/(100)` = 1