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: Defining the Break-Even Point.
The break-even level of income occurs when the total income ($Y$) of an individual or economy is exactly equal to the total consumption ($C$). At this specific point, there is no surplus income left over for savings.
Step 2: Testing the options.

(A) Slope of Consumption Curve = Slope of Saving Curve: This is generally false as the Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) usually differ.
(B) APC = APS: At the break-even point, APC is 1 and APS is 0, so they are not equal.
(C) Slope of Saving Curve = Unity (1): The slope (MPS) is typically a fraction between 0 and 1, not necessarily 1.
(D) APC = Unity (1): Since $APC = C / Y$ and at this point $C = Y$, the ratio must be 1 (Unity).

Step 3: Summary.
At the break-even income level, all earned income is exhausted by consumption expenditures, making the APC equal to one and savings equal to zero.
Final Answer: APC = Unity (1).