Question
Explain consumption function with the help of a schedule and diagram.
Solution
A consumption function schedule and diagram given below further clarify the concept of consumption function.
|
National Income (Y) र crores |
Consumption (C) र crores |
|
0 |
60 |
|
100 |
140 |
|
200 |
220 |
|
300 |
300 |
|
400 |
380 |
|
500 |
460 |
Fig.(a)
Comment. A consumption function curve indicating
is drawn in Fig.(a)(i) The consumption curve starts from a positive point R which indicates that even when income is zero, consumption expenditure equal to OR is incurred from past savings. Thus OR represents autonomous consumption
(ii) Consumption curve slopes upwards which shows direct relationship, i.e., when income increases, consumption expenditure also increases but in a lesser proportion,
(iii) The rising slope of consumption curve is b (i,e„ MPC = ΔC/ΔY),
(iv) Since slope of curve is constant, we get a straight line consumption curve.
