Can someone please explain why apc falls as disposable income rises?
I thought that the more money you have, the more you consume?
- Anonymous8 years agoFavorite Answer
If consumption function is C=a+bYd, a is constant, b is MPC and Yd is disposable income. So APC or average consumption will be C/Yd=APC= a/Yd +b. Since MPC or b and a are constant, an increase in Yd will cause a decline in APC. In words, a consumption per unit of income will decline when income increase, because consumers will not buy again what they already had.