Distinction between APS and MPS in Income | Micro Economics

Distinction between APS and MPS in Income!

Simply put, total saving (S) divided by total income (Y) is called APS (APS = S/Y) whereas change in savings (∆S) divided by change in income (∆Y) is called MPS (MPS = ∆S/∆Y).

1. Between APS and MPS, the value of APS can be negative when consumption expenditure becomes higher than income.

(D04; A04, 06) For example, if income is Rs 1,000 and consumption expenditure is Rs 1,200, then saving is-200 (i.e., dissaving). Then

APS = -200/ 1,000 = -1/5 = -0.2

2. The value of MPS can never be negative True or false? Explain [D2010).

It is a true statement as a person may at the most spend entire additional income (∆y) so that ∆s = 0. Thus MPS can at the most be zero.

3. When value of APS is negative, value of MPS will also be negative True or false? [A2010). It is a false statement because value of MPS is always between 0 and 1.

These concepts are further clarified in the following imaginary table:

Hypothetical Saving Function Schedule (Rs in crore):

Income (Y)	Consumption (C)	Saving (S)	Aps = s/y	MPS = AS/AY
0	30	-30	—	—
100	100	0	—	—
200	170	30	0.15(30/200)	0.3 (30/100)
300	240	60	0.20	0.3
400	310	90	0.225	0.3
500	380	120	0.24	0.3

The table shows that in the beginning saving is negative since consumption is never zero. But as income increases, consumption increases less than proportionally. Consequently, saving becomes positive and increases at a faster rate. From the above and the preceding tables, we find that as income increases, APC declines continuously whereas APS increases continuously.