Propensity to Consume        

The relationship between income and consumption is measured by average and marginal propensities to consume. Average propensity to consume (APC) refers to the total amount of consumption expenditure out of a given total income at a point of time. It is expressed as the ratio of total consumption to total income. Mathematically
          
               APC = Total Consumption/Total Income = C/Y           
                                          
If at a particular point of time, an economy spends Rs.80, 000 crores, when the level of income is Rs. 1, 00,000 crores, the average propensity to consume would be 80,000 ÷ 1, 00,000 i.e.., 0.80 or 80%. It is proportion of the economy’s income that is devoted to consumption. APC can also be calculated for an individual consumer using the same formula.

The marginal propensity to consume (MPC) is the ratio of change in total consumpution and total income. If consumption changes by ΔC in response to ΔY change in income, the national income leads to Rs.900 crores increase in the consumption, the marginal propensity to consume (MPC) for the economy will be calculated as follows:

MPC = Change in Consumption/Change in Income = ΔC/ΔY = Rs. 900 Crores/ Rs.1000 crores = 0.9 or 90%
                                                                                                                                                                         
The marginal propensity to consume can also be defined as additional consumption out of additional income. If an individual consumer, say Abhijit spends Rs. 8 on consumption out of his additional income of Rs.10; his MPC would be Rs. 8 ÷ Rs. 10 or 0.8