Question
Explain the consumption function with the help of schedule and diagram.
✓
Answer
Consumption function shows the relationship between consumption and income.
C = f(Y)
This equation states that there is a direct relation between consumption and the level of income. As the level of income increases, consumption also increases but the increase in consumption is less than the increase in income.
The concept of consumption function can be further explained by following consumption schedule and curve:
The above table and diagram show that as the income increases, consumption also increases but the increase in consumption is less than increase in income.
C = f(Y)
This equation states that there is a direct relation between consumption and the level of income. As the level of income increases, consumption also increases but the increase in consumption is less than the increase in income.
The concept of consumption function can be further explained by following consumption schedule and curve:
| Income | Consumption (₹ crores) |
| 0 | 50 |
| 100 | 100 |
| 200 | 150 |
| 300 | 200 |
| 400 | 250 |
| 500 | 300 |
The above table and diagram show that as the income increases, consumption also increases but the increase in consumption is less than increase in income.
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