What's the formula for Average propensity to consume (APC)
Show your steps on how it is derived
The formula for Average Propensity to Consume (APC) is:
APC = Consumption / Income
To derive this formula, we first need to understand the components involved:
1. Consumption (C): This is the total amount spent on goods and services by households in an economy.
2. Income (Y): This is the total amount earned by households in an economy.
Average Propensity to Consume (APC) represents the proportion of income that is spent on consumption. It is calculated by dividing total consumption by total income.
Steps:
1. Start with the formula for Average Propensity to Consume:
APC = Consumption / Income
2. Substitute the symbols with their respective values:
APC = C / Y
3. Divide the total consumption (C) by the total income (Y) to get the Average Propensity to Consume (APC).
Therefore, the formula for Average Propensity to Consume (APC) is:
APC = Consumption / Income
This formula shows the proportion of total income that is spent on consumption and is used to analyze the spending behavior of households in an economy.