Average Propensity to Consume

by Obaidullah Jan, ACA, CFA

Average propensity to consume (APC) is the percentage of disposable income which households intend to spend on goods and services.

It is a statistic that tells what fraction of income households are willing to spend and what fraction they intend to save.

Formula

$$ Average\ Propensity\ to\ Consume\ (APC) \\=\frac{Total\ Consumption\ Expenditure}{Total\ Disposable\ Income} $$

Example

Mark has total income for FY 2012 of $100,000 and he is liable to pay taxes of $20,000. If his total expenditure for FY 2012 are $60,000. Find his average propensity to consume.

Mark's total disposable income is $80,000 ($100,000 of total income minus taxes of $20,000). Average propensity to consume equals total consumption expenditure of $60,000 divided by total disposable income (which is $80,000). This gives us an average propensity to consume (APC) of 75%.

This tells that Mark intends to consume 75% of his disposable income and save 25%.