Explain the consumption function, with the …
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Preeti Dabral 4 years, 4 months ago
The functional relationship between the consumption expenditure and income is known as consumption function Symbolically,
C=f (Y), Which is read as 'Consumption is a function of income'
Consumption function in terms of an algebraic expression can be written as
C={tex}\overline C{/tex}+bY
Where,
C=Consumption expenditure
<th scope="col">Consumption (C)</th> <th scope="col">Income (Y)</th> <th scope="col">Marginal Propensity to Consume ={tex}\overline C{/tex}=Autonomous consumption at zero levels of income
b=Marginal Propensity to Consume
Y=Income
Let us understand it with the help of a schedule and diagram.
The point B represents the break even point where the consumption expenditure equals the income. To the left of point B, consumption is greater than income and to the right of point B, consumption is less than income.
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