(Advanced analysis) If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when
Disposable income is
A) $80.
B) $100.
C) $120.
D) $160.

Question

Quizplus · Accepted Answer

The average propensity to consume (APC) is defined as the ratio of consumption to disposable income. Mathematically, APC = C/Y. 
Substituting the given equation for C, APC = (20 + 0.8Y)/Y = 20/Y + 0.8. 
To find the level of disposable income at which APC is equal to 1, we need to set APC = 1 and solve for Y: 
1 = 20/Y + 0.8 
0.2 = 20/Y 
Y = 100 
Therefore, the average propensity to consume is 1 when disposable income is $100.

(Advanced Analysis) If the Equation for the Consumption Schedule Is