CBSE 2016 Class 12 Economics Outside Delhi Set-1
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Question : 16 of 19
Marks:
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Given saving curve, derive consumption curve and state the steps in doing so. Use diagram.
Solution:
Steps of Deriving the consumption curve from saving curve :
(i) Draw line from the origin.
(ii) Take OC equal to OS on Y-axis
(iii) Draw perpendicular line form to on axis which intersect line at point .
(iv) Join and and extend it to get consumption curve .
In the given figure, a straight line saving curve is plotted showing saving function at different levels of income. It shows negative saving at zero level of income and zero saving level at OR level of income. At point , consumption expenditure = income, whereas to the left of , consumption expenditure is less than income.
At zero level of income, consumption expenditure is shown as which is equal to dissaving of . Thus is the starting point of consumption curve. At OR level of income, saving is zero, it shows that consumption expenditure must be equal to income of . This enables to plot as consumption expenditure equal to , which in turn gives a point on 45 degree line showing equal to OR. Thus B becomes the point on proposed consumption curve.
is the point on consumption curve at which total consumption expenditure is equal to income (Y). At point B, APC .
(i) Draw line from the origin.
(ii) Take OC equal to OS on Y-axis
(iii) Draw perpendicular line form to on axis which intersect line at point .
(iv) Join and and extend it to get consumption curve .
In the given figure, a straight line saving curve is plotted showing saving function at different levels of income. It shows negative saving at zero level of income and zero saving level at OR level of income. At point , consumption expenditure = income, whereas to the left of , consumption expenditure is less than income.
At zero level of income, consumption expenditure is shown as which is equal to dissaving of . Thus is the starting point of consumption curve. At OR level of income, saving is zero, it shows that consumption expenditure must be equal to income of . This enables to plot as consumption expenditure equal to , which in turn gives a point on 45 degree line showing equal to OR. Thus B becomes the point on proposed consumption curve.
is the point on consumption curve at which total consumption expenditure is equal to income (Y). At point B, APC .
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