Given below is the consumption function of an economy:
C = 100 + 0.5 Y.
With the help of a numerical example, show that in this economy, as income increases, APC will decrease.

Explanation

Given consumption function : C = 100 + 0.5Y
To show that APC decreases with increase in income, consider the following hypothetical schedule:

As seen in the given schedule, when the income increases from ₹ 100 crores to ₹ 200 crores and then to ₹ 300 crores and so on, APC decreases from 1.5 to 1 and then to 0.83 and keeps on decreasing with increase in income. Therefore, with an increase in income, APC decreases.