Question 61 markMCQSection A

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

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=YC = Y) and savings are zero, so APC=C/Y=1APC = C/Y = 1.

Answer keywords:break-even pointaverage propensity to consumeaverage propensity to saveconsumption functionAPCAPSzero savings

Marking scheme

  1. 1.1 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/YAPC = 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.

Common mistakes

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

Analysis and 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=YC = Y and Savings (S) = 0.
  • Therefore, APC=C/Y=Y/Y=1APC = C/Y = Y/Y = 1, and correspondingly APS=S/Y=0APS = 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=APSAPC = APS — at break-even, APC=1APC = 1 and APS=0APS = 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.

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.

Question details

Q6 of 37 questions

Board
CBSE
Class
Class 12
Subject
Economics
Year
2026
Section
Section A
Marks
1
Type
MCQ
Chapter
Determination of Income and Employment
Topic
Break-Even Point (APC and APS)
Bloom's level
apply
Syllabus topic
Unit 4: Determination of Income and Employment — Consumption Function, Break-Even Point, Average Propensity to Consume and Save
Author
CBSE
Reviewed by
Padhantu Academic Team

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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=YC = Y), so savings are zero. At this point, APC=1APC = 1 and APS=0APS = 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.