Which of the following observations can be be concluded for APC i.e. average propensity to consume?

1. Average propensity can be zero when the consumption is equal to the income.
2. APC falls with increase in income as the proportion of consumption also decreases.
3. APC is less than 1 to the left of the break-even point and greater than 1 to the right of the break-even point.
4. Average propensity to consume is the ratio of total consumption expenditure to total income.

2 and 4

The correct answer is Option 2: 2 and 4

Explanation:

1. APC falls with an increase in income as the proportion of consumption also decreases. This is generally true because as income increases, the proportion of income spent on consumption tends to decrease, leading to a lower APC.

2. Average propensity to consume is the ratio of total consumption expenditure to total income. This is a correct definition of APC.

The other options are not correct:

• APC cannot be zero when consumption is equal to income; rather, it would be 1.
• APC being less than 1 to the left of the break-even point and greater than 1 to the right of the break-even point is not accurate. APC typically remains less than 1 throughout, as the consumption is usually less than income.