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Given below is the consumption function ...

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

Text Solution

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C=100+0.5Y("Give")
To show tha APC decreases with increase in income, consider the following hypothetical schedule:

As seen in the above schedule, when the income increases from 100 crore to 200 crore and then to 300 crore 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.
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