propensity to consume has been divided into two parts viz. average propensity to consume and marginal propensity to consume.
1. average propensity to consume
average propensity to consume is the ration of aggregate consumption to aggregate income. therefore, ration of consumption to income is known as average propensity to consume. average propensity to level of income. thus, the relationship between the gross national income and gross consumption expenditure is the average propensity to consume.
2. marginal propensity to consume
marginal propensity to consume is the relationship of the change in consumption to the change in aggregate income. it is also known as the rate of change in average propensity to consume. the change in consumption expenditure on the basis of the ration of the following year is given by the marginal propensity to consume. thus, marginal propensity to consume is obtained by dividing change in consumption expenditure with change in aggregate income.
1. average propensity to consume
average propensity to consume is the ration of aggregate consumption to aggregate income. therefore, ration of consumption to income is known as average propensity to consume. average propensity to level of income. thus, the relationship between the gross national income and gross consumption expenditure is the average propensity to consume.
2. marginal propensity to consume
marginal propensity to consume is the relationship of the change in consumption to the change in aggregate income. it is also known as the rate of change in average propensity to consume. the change in consumption expenditure on the basis of the ration of the following year is given by the marginal propensity to consume. thus, marginal propensity to consume is obtained by dividing change in consumption expenditure with change in aggregate income.
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