AVERAGE PROPENSITY TO CONSUME Meaning and
Definition
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The Average Propensity to Consume (APC) is an economic concept that measures the percentage of income that an individual or a household spends on consumption. It is calculated by dividing the total consumption expenditure by the total income.
The term "average" means that the APC is calculated over a specific period, typically a month or a year, to provide an average value. The APC is expressed as a percentage, ranging from 0 to 100%. A higher APC implies that a larger proportion of income is spent on consumption, indicating a higher propensity to consume.
The APC is an important indicator of consumer behavior and plays a crucial role in understanding the overall economic activity. It reflects the spending pattern of individuals and households, providing insights into their saving and investment decisions. A high APC suggests that individuals are more willing to spend their income on goods and services, stimulating demand and boosting economic growth.
The concept of APC is closely related to the marginal propensity to consume (MPC), which measures the change in consumption due to a change in income. While the MPC represents the change in consumption resulting from an increase (or decrease) in income, the APC represents the overall proportion of income spent on consumption over a given period.
Overall, the average propensity to consume is a valuable economic measure that helps analyze consumption patterns and provides key information for policymakers, economists, and businesses in assessing the overall health and stability of an economy.
