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in Economics by (56.9k points)

Explain the concept of consumption function.

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The relationship between consumption and income is called the consumption function Symbolically, 

C = f (Y) 

In equation, 

C = C + bY 

C > 0 ; 0 < b < 1 

Where, C = consumption

C = autonomous consumption at zero level of income.

b = MPC 

Y = level of income. 

As the consumption function shows, there is a positive relationship between income and consumption. The slope of the curve is MPC, which is equal to ∆C/∆Y.

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