Question

Assertion : \(APC\) can be greater than 1.
Reason (R): At very low levels of income, consumption can exceed income.

• A. Both A and R are true and R is the correct explanation.
• B. Both A and R are true but R is not the explanation.
• C. A is true, R is false.
• D. A is false, R is true.

Hint:

$APC>1$ implies dissaving. $APC = 1$ means all income is consumed. $APC<1$ means a part of income is saved. APC can never be zero or negative.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Average Propensity to Consume (\(APC\)) is the ratio of consumption (\(C\)) to income (\(Y\)).
\[ APC = \frac{C}{Y} \] Step 2: Detailed Explanation:
Assertion (A): \(APC\) is greater than 1 whenever \(C>Y\). This is logically possible. So, Assertion A is true.
Reason (R): At very low levels of income, people must consume a minimum amount to survive (autonomous consumption). To finance this, they use past savings or borrow money (dissaving). Thus, consumption (\(C\)) exceeds income (\(Y\)). So, Reason R is true.
Conclusion: Since \(C>Y\) results in \(C/Y>1\), Reason R directly explains why Assertion A is true.
Step 3: Final Answer:
Both statements are accurate, and the reason provides the underlying economic logic for the assertion.