The table shows the consumption schedule of an economy (Rs crore):
| Income | Consumption |
|---|---|
| 0 | 50 |
| 100 | 120 |
| 200 | 190 |
| 300 | 260 |
At which of the following levels of income is the APC greater than 1, and what is the MPS of this economy?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs 100 crore; 0.3
APC = C/Y. It is more than 1 where consumption is more than income. The MPS comes from the change in consumption as income rises.
At Y = 100: APC = 120/100 = 1.2, which is more than 1
At Y = 200: APC = 190/200 = 0.95; at Y = 300: APC = 260/300 = 0.87
MPC = 70/100 = 0.7, so MPS = 1 − 0.7 = 0.3
Option (2) Rs 200 crore; 0.3 — Incorrect. At Rs 200 crore the APC is 0.95, below 1.
Option (3) Rs 100 crore; 0.7 — Incorrect. The income is right, but 0.7 is the MPC, not the MPS.
Option (4) Rs 300 crore; 0.7 — Incorrect. At Rs 300 crore the APC is 0.87, and 0.7 is the MPC.
NCERT (2026-27): “Some Definitions Marginal propensity to consume (MPC): it is the change in consumption per unit change in income. It is denoted by c and is equal to ΔC/ΔY. |