EconomicsCBSE Class 12 · Determination of Income and Employment

Propensity to Consume and Save: Class 12 Consumption Function, APC, MPC, APS and MPS

Updated 15 October 2026 · Fact-checked

The consumption function C = c̄ + bY shows planned consumption at each income, where c̄ is autonomous consumption and b the marginal propensity to consume. APC = C/Y and MPC = ΔC/ΔY; APS = S/Y and MPS = ΔS/ΔY. So APC + APS = 1 and MPC + MPS = 1, with MPC between 0 and 1.

Understand Propensity to Consume and Save

Consumption function. Planned consumption depends on income: C = c̄ + bY.

c̄ (autonomous consumption): consumption even at zero income (financed by past savings or borrowing).
b (MPC): the fraction of each extra rupee of income consumed; 0 < b < 1.

Saving function. Since Y = C + S, S = −c̄ + (1 − b)Y. At zero income, saving is −c̄ (dissaving).

Average propensities.

APC = C ÷ Y; APS = S ÷ Y; APC + APS = 1.
APC can be more than 1 below the break-even income (consumption exceeds income), equal to 1 at break-even, and less than 1 above it. APS can be negative, zero or positive accordingly.
With autonomous consumption, APC falls as income rises.

Marginal propensities.

MPC = ΔC ÷ ΔY; MPS = ΔS ÷ ΔY; MPC + MPS = 1 (because ΔY = ΔC + ΔS).
0 ≤ MPC ≤ 1 and 0 ≤ MPS ≤ 1; in a linear consumption function MPC is constant.

Break-even point. Income at which C = Y (S = 0): Y = c̄ ÷ (1 − b) = c̄ ÷ MPS.

Diagram. The consumption curve starts at c̄ on the vertical axis and cuts the 45° line at the break-even point; the saving curve starts at −c̄ and cuts the horizontal axis at the same income.

Propensity to Consume and Save: key facts

Consumption function: C = c̄ + bY; b = MPC.
Saving function: S = −c̄ + (1 − b)Y
Average propensities: APC = C/Y; APS = S/Y; APC + APS = 1
Marginal propensities: MPC = ΔC/ΔY; MPS = ΔS/ΔY; MPC + MPS = 1
Break-even income: Y = c̄ ÷ (1 − b); Where C = Y and S = 0.

How to answer Propensity to Consume and Save questions

Propensity questions are quick numericals and short theory items. Keep the four definitions and two identities ready.

1From a table, compute S = Y − C at each income.
2Average propensities use levels (C/Y, S/Y); marginal propensities use changes (ΔC/ΔY, ΔS/ΔY).
3From C = c̄ + bY, read MPC = b and derive S = −c̄ + (1 − b)Y.
4Break-even income = c̄ ÷ (1 − b).
5Use APC + APS = 1 and MPC + MPS = 1 to check answers.
6For theory, explain why APC can exceed 1 but MPC cannot.

Propensity to Consume and Save in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Marginal propensity to consume

Suppose a young professional's monthly income rises from ₹30,000 to ₹40,000 after a promotion, and her monthly spending rises from ₹27,000 to ₹34,000.

Calculate her MPC and MPS and her APC before and after the promotion.

Try it first, then show the solutionSolution

MPC = (34,000 − 27,000) ÷ (40,000 − 30,000) = 0.7; MPS = 0.3.
APC before = 27,000 ÷ 30,000 = 0.9; after = 34,000 ÷ 40,000 = 0.85.
APC falls because she spends only 70% of the extra income.

Answer: MPC 0.7 and MPS 0.3; APC falls from 0.9 to 0.85. She consumes a smaller share of total income as it rises, because only 70 paise of each extra rupee is spent.

Memory hook: Marginal looks at the extra rupee; average looks at the whole income.

Tricks to remember Propensity to Consume and Save

Short memory aids. Say each one aloud once, then use it on a question the same day.

Sum to one
APC + APS = 1 and MPC + MPS = 1: income is either consumed or saved.
Use it when: Checking answers.
Average can overshoot, marginal cannot
APC can be above 1 at low incomes; MPC stays between 0 and 1.
Use it when: Assertion-reason items.
Break-even = c̄ over MPS
Divide autonomous consumption by the saving rate.
Use it when: Break-even income.

Propensity to Consume and Save: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: MPS from MPC · 1 mark · MCQBoard level

If MPC is 0.8, MPS is:
(a) 0.8
(b) 0.2
(c) 1.8
(d) 1.25

Try it first, then show the solutionSolution

MPS = 1 − MPC = 0.2.

Answer: (b) 0.2

Example 2: From a schedule · 3 marks · Short answerBoard level

Income (₹ crore): 0, 100, 200, 300. Consumption: 40, 120, 200, 280. Calculate saving at each level, APC at income 200, APS at income 300, and MPC and MPS. (3 marks)

Try it first, then show the solutionSolution

Saving: −40, −20, 0, 20.
APC at 200 = 200 ÷ 200 = 1; APS at 300 = 20 ÷ 300 = 0.067.
MPC = 80 ÷ 100 = 0.8; MPS = 20 ÷ 100 = 0.2.

Answer: S: −40, −20, 0, 20; APC 1; APS 0.067; MPC 0.8; MPS 0.2.

Example 3: Using a consumption function · 4 marks · Short answerHarder board level

Given C = 50 + 0.75Y (₹ crore), find consumption, saving, APC and APS at Y = 400, and the break-even income. (4 marks)

Try it first, then show the solutionSolution

C = 50 + 300 = 350; S = 400 − 350 = 50.
APC = 350/400 = 0.875; APS = 0.125.
Break-even: Y = 50 ÷ 0.25 = 200.

Answer: C ₹350 crore, S ₹50 crore, APC 0.875, APS 0.125; break-even income ₹200 crore.

Example 4: From saving function to consumption function · 3 marks · Short answerHarder board level

The saving function is S = −100 + 0.25Y. Derive the consumption function and find the break-even income. (3 marks)

Try it first, then show the solutionSolution

C = Y − S = Y − (−100 + 0.25Y) = 100 + 0.75Y.
Break-even: S = 0 → 0.25Y = 100 → Y = 400.
Check: C(400) = 100 + 300 = 400 = Y.

Answer: C = 100 + 0.75Y; break-even income 400.

Example 5: APC falls as income rises · 3 marks · Short answerHOTS / competency

For C = 50 + 0.75Y, calculate APC at Y = 200 and Y = 800 and explain why it falls although MPC is constant. (3 marks)

Try it first, then show the solutionSolution

At Y = 200: C = 200, APC = 1.
At Y = 800: C = 650, APC = 0.8125.
Autonomous consumption (50) is a fixed amount that becomes a smaller share of a larger income, while each extra rupee adds only 0.75 to consumption.

Answer: APC falls from 1 to 0.81 because the fixed autonomous part is spread over a larger income while MPC stays 0.75.

Example 6: Can APC exceed one? · 1 mark · Assertion-reasonHOTS / competency

Assertion (A): APC can be greater than one.
Reason (R): At low levels of income, consumption can exceed income because of autonomous consumption financed by dissaving.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

Below break-even, C > Y, so APC > 1; R explains A.

Answer: (a) Both A and R are true, and R is the correct explanation of A.

Where students lose marks in Propensity to Consume and Save

The slips examiners see most often, and what to write instead.

Mistake: Using levels for MPC
Mixing average and marginal.
Wrong working
MPC = 280 ÷ 300.
Right working
MPC = (280 − 200) ÷ (300 − 200) = 0.8.
Do this: Marginal uses changes.
Usually costs: 1 mark.
Mistake: Saying MPC can exceed one
Confusing with APC.
Wrong working
MPC = 1.2 at low incomes.
Right working
APC may exceed 1; MPC lies between 0 and 1.
Do this: Remember which can overshoot.
Usually costs: 1 mark.
Mistake: Wrong sign of autonomous saving
Copying c̄ as positive.
Wrong working
S = 50 + 0.25Y.
Right working
S = −50 + 0.25Y.
Do this: At zero income, saving is negative.
Usually costs: 1 mark.
Mistake: Break-even with MPC instead of MPS
Dividing by the wrong propensity.
Wrong working
Y = 50 ÷ 0.75.
Right working
Y = 50 ÷ 0.25 = 200.
Do this: Divide by (1 − b).
Usually costs: 1 mark.

Exam tips

State the formula before every value: 'APC = C/Y = ...'.
Use the identities as checks and say so in the answer.
Draw the consumption and saving curves with the 45° line when asked to 'explain with a diagram'.
Propensities are tested as 1-mark MCQs and inside 3-, 4- and 6-mark income determination questions.

Practice questions on Propensity to Consume and Save

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
The sum of APC and APS is always:
(a) 0
(b) 1
(c) more than 1
(d) equal to MPC
Hint
Income is consumed or saved.
Answer
(b) 1
Q2 · 1 mark · MCQBoard level
The value of MPC lies:
(a) between 0 and 1
(b) above 1
(c) below 0
(d) between −1 and 1
Hint
Part of extra income.
Answer
(a) between 0 and 1
Q3 · 3 marks · Short answerBoard level
At income ₹500 crore, consumption is ₹400 crore. When income rises by ₹200 crore, consumption rises by ₹160 crore. Calculate APC, APS at ₹500 crore and MPC, MPS. (3 marks)
Hint
Levels for average, changes for marginal.
Answer
APC = 0.8; APS = 0.2; MPC = 160/200 = 0.8; MPS = 0.2.
Q4 · 3 marks · Short answerHarder board level
Given C = 100 + 0.6Y, derive the saving function and find the break-even income. (3 marks)
Hint
S = Y − C.
Answer
S = −100 + 0.4Y; break-even when S = 0: Y = 100/0.4 = 250.
Q5 · 4 marks · Short answerHarder board level
For C = 30 + 0.6Y, complete consumption and saving at Y = 0, 50, 100, 150, and find APC at 150 and MPS. (4 marks)
Hint
Substitute.
Answer
C: 30, 60, 90, 120; S: −30, −10, 10, 30. APC at 150 = 120/150 = 0.8; MPS = 0.4.
Q6 · 3 marks · Short answerHarder board level
Show that MPC + MPS = 1. (3 marks)
Hint
Start from Y = C + S.
Answer
Y = C + S, so ΔY = ΔC + ΔS. Dividing by ΔY: 1 = ΔC/ΔY + ΔS/ΔY = MPC + MPS.
Q7 · 3 marks · Short answerHarder board level
At income ₹100 crore, consumption is ₹120 crore. Calculate APS and explain what it means. (3 marks)
Hint
Saving is negative.
Answer
S = 100 − 120 = −20; APS = −0.2. Negative APS means dissaving: households consume more than their income by using past savings or borrowing; this happens below the break-even income.
Q8 · 1 mark · Assertion-reasonHarder board level
Assertion (A): MPS can be negative.
Reason (R): MPS lies between 0 and 1.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Marginal vs average.
Answer
(d) A is false, but R is true. (APS, not MPS, can be negative.)
Q9 · 3 marks · Short answerHOTS / competency
At income ₹1,000 crore, APC is 0.9 and MPC is 0.8 (linear consumption function). Find autonomous consumption and write the consumption function. (3 marks)
Hint
C = APC × Y.
Answer
C = 0.9 × 1,000 = 900 = c̄ + 0.8 × 1,000, so c̄ = 100. C = 100 + 0.8Y.
Q10 · 3 marks · Short answerHOTS / competency
Suppose a family's income rises from ₹40,000 to ₹50,000 a month and its consumption from ₹36,000 to ₹43,000. Calculate MPC and APC in both situations, and comment. (3 marks)
Hint
MPC uses changes.
Answer
MPC = 7,000/10,000 = 0.7. APC: 0.9 before, 0.86 after. As income rises, the family consumes a smaller fraction of income because MPC (0.7) is below APC (0.9).

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Formula for MPC?Show answer
ΔC ÷ ΔY.
2.At break-even income, APC equals?Show answer
1.
3.C = 40 + 0.8Y: saving function?Show answer
S = −40 + 0.2Y.
4.Which can be greater than 1: APC or MPC?Show answer
APC.
5.Break-even income for C = 40 + 0.8Y?Show answer
200.

Propensity to Consume and Save: frequently asked questions

What is the difference between APC and MPC in Class 12?

APC is total consumption divided by total income (C/Y); MPC is the change in consumption divided by the change in income (ΔC/ΔY).

Why is MPC + MPS always 1?

Any change in income is either consumed or saved, so ΔC + ΔS = ΔY.

Can APS be negative?

Yes, below the break-even income, when consumption exceeds income (dissaving).

What is autonomous consumption?

Consumption at zero income, independent of income, financed by past savings or borrowing.