1 markMCQSection A

Identify, which of the following is true at the Break Even level of Income. (Choose the correct option)

Q: Identify, which of the following is true at the Break Even level of Income. (Choose the correct option)

**Correct option: (D) Average Propensity to Consume (APC) = Unity (1).** At the break-even level of income, consumption equals income ($C = Y$) and savings are zero, so $APC = C/Y = 1$.

Determination of Income and Employment

Break-Even Point (APC and APS)

Options

(A)Slope of Consumption Curve = Slope of Saving Curve

(B)Average Propensity to Consume (APC) = Average Propensity to Save (APS)

(C)Slope of Saving Curve = Unity (1)

(D)Average Propensity to Consume (APC) = Unity (1)

Official Answer

Correct option: (D) Average Propensity to Consume (APC) = Unity (1).

At the break-even level of income, consumption equals income ( $C = Y$ ) and savings are zero, so $APC = C/Y = 1$ .

break-even pointaverage propensity to consumeaverage propensity to saveconsumption functionAPCAPSzero savings

Marking Scheme

11 mark for selecting option (D) — objective type question, no partial credit.

Hint

At break-even income, consumption exactly equals income and savings are zero — use $APC = C/Y$ to check each option.

Quick Oral Answer

At the break-even level of income, consumption equals income and savings are zero, so APC equals 1 and APS equals 0.

Analysis & Explanation

This tests understanding of the break-even point on the consumption function.

Why (D) is correct

At break-even income, the entire income is spent on consumption, i.e., $C = Y$ and Savings (S) = 0.
Therefore, $APC = C/Y = Y/Y = 1$ , and correspondingly $APS = S/Y = 0$ .

Why the others are wrong

(A) Slope of Consumption curve (MPC) = Slope of Saving curve (MPS) — this is not a defining feature of break-even income; MPC and MPS always sum to 1 but need not be equal to each other at break-even point.
(B) $APC = APS$ — at break-even, $APC = 1$ and $APS = 0$ , so they are clearly unequal, not equal.
(C) Slope of Saving curve (MPS) = 1 — the slope of the saving curve is MPS, which is generally a fraction between 0 and 1, not necessarily 1 at break-even income.

Common Mistakes

1Confusing 'slopes' (MPC, MPS — marginal concepts) with 'APC, APS' (average concepts) — the break-even property is about APC and APS, not the slopes.
2Assuming APC = APS at break-even, when in fact APC = 1 and APS = 0 at that exact point, making them unequal.

Interesting Facts

The break-even point is also called the 'point of zero savings' on the consumption function diagram — it is where the 45-degree line intersects the consumption curve.

Below the break-even level of income, households engage in dissaving (spending out of past savings or borrowing) since consumption exceeds current income.

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Frequently Asked Questions

What is the break-even level of income?

The break-even level of income is the level at which consumption expenditure exactly equals income ( $C = Y$ ), so savings are zero. At this point, $APC = 1$ and $APS = 0$ .

What happens to savings below the break-even level of income?

Below the break-even level, consumption exceeds income, so savings become negative — this is called dissaving, where households consume more than they earn by using past savings or borrowing.