The average propensity to consume (APC) represents the portion of total income that households spend on goods and services. It indicates the general spending behavior of an economy at a specific income level.

Formula: APC = Total Consumption (C) / Total Income (Y)

Key features:

• APC is always a positive number.
• At very low income levels, APC can be greater than 1. This happens when people spend more than they earn, a process known as dissaving.
• As total income increases, the APC usually decreases because households save a larger share of their earnings.
• The sum of the APC and the Average Propensity to Save (APS) always equals 1, as all income is either spent or saved.
• While APC helps explain long-term consumption trends, economists often use the Marginal Propensity to Consume (MPC) to study short-term economic changes.