Average Propensity to Consume

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%.

Written by Obaidullah Jan, ACA, CFA and last modified on