Question

Identify, which of the following is true at the Break Even level of Income.

• A. Slope of Consumption Curve = Slope of Saving Curve
• B. Average Propensity to Consume (APC) = Average Propensity to Save (APS)
• C. Slope of Saving Curve = Unity (1)
• D. Average Propensity to Consume (APC) = Unity (1)

Hint:

At the Break Even level of income, all income is spent on consumption, and savings are zero. Hence, Average Propensity to Consume (APC) equals 1.

Answer 1

The Correct Option is D

Step 1: Understanding Break Even Level of Income.
At the Break Even level of income, total consumption equals total income, and the savings are zero. At this point, the Average Propensity to Consume (APC) is equal to one.
Step 2: Evaluation of the options.

• (A) Slope of Consumption Curve = Slope of Saving Curve: Incorrect. The slope of the consumption curve and saving curve are not equal at the break-even point.
• (B) APC = APS: Incorrect. At the break-even level, APC is equal to 1, while APS is 0, as there is no saving.
• (C) Slope of Saving Curve = Unity (1): Incorrect. The slope of the saving curve is not necessarily equal to 1 at the break-even level.
• (D) APC = Unity (1): Correct. At the break-even level of income, the average propensity to consume (APC) is equal to 1 because all income is being spent on consumption.

Step 3: Conclusion.
At the Break Even level of income, the APC is unity, meaning that the entire income is consumed, and savings are zero. Final Answer:} APC = Unity (1).