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 LONG RUN, MICROECONOMICS: In terms of the microeconomic analysis of production and supply, a period of time in which all inputs in the production process are variable. The long run is primarily used to analyze production decisions for a firm and is also referred to as the planning horizon. The long run is a period of time in which a business can change the quantities of ALL resource inputs--labor, capital, land, and entrepreneurship. Nothing is fixed. If your factory is to small, well then, build a bigger one. The long-run analysis of production is used to better understand economies of scale, diseconomies of scale, and long-run market supply.

AVERAGE PROPENSITY TO SAVE:

The proportion of household income that is used for saving. The average propensity to save (abbreviated APS) is really nothing more than average saving. Together with the average propensity to consume, it indicates how a given level of income is divided between consumption and saving. A related saving measure is the marginal propensity to save.
The average propensity to save (APS) indicates what the household sector does with income. The APS indicates the portion of income that is used for saving. If, for example, the APS is 0.1, then 10 percent of income goes for saving.

The standard formula for calculating average propensity to save (APS) is:

 APS = savingincome
Saving Schedule

A saving schedule, such as the one presented to the right, provides data that can be used to run through a few APS calculations. The first column in this schedule presents household income, ranging from \$0 to \$10 trillion. The second column presents saving, ranging from -\$1 to \$1.5 trillion. The task at hand is to derive the average propensity to save at each income level.

The average propensity to save is calculated by dividing saving in the second column by income in the first column. Beginning near the top of the schedule, if household income is \$1 trillion, then saving is -\$0.75 trillion, giving an average saving of -0.75.

Running the numbers through the APS formula gives:

 APS = savingincome = -\$0.75\$1 = -0.75
Similar calculations can be performed for each income level. For example, if income from \$4, then saving is also \$0 trillion and the APS is equal 0 (\$0/\$4). If income is \$8 trillion, the saving is \$1 trillion and the APS is equal to 0.13 (\$1/\$8). To display all average propensity to save values, click the [APS] button.

The prime conclusion from a quick look at the numbers is that APS increases as income increases. The APS is -0.75 for \$1 trillion of income, then increases to 0.15 for \$10 trillion of income. In other words, APS is not constant.

The APS increases due to autonomous saving and induced saving. Autonomous saving is the -\$1 trillion of saving that takes place if income is zero. Induced saving is the increase in saving that occurs due to an increase in income.

Because saving is negative when income is zero, saving is necessarily less than income at low income levels, meaning the APS is less than one. Moreover, while saving is induced as income increases. The increase in saving increases the APS from its initial negative value into the positive range.

The average propensity to save is one of four related measures. The other three are average propensity to consume, marginal propensity to save, and marginal propensity to consume.

• Average Propensity to Consume: This is the proportion of household income that is used for consumption. Abbreviated APC, this is really nothing more than average consumption. Together with the average propensity to save, it indicates how a given level of income is divided between consumption and saving.

• Marginal Propensity to Save: This is the change in saving resulting from a change in income. Abbreviated MPS, this indicates the proportion of additional household income that is used for saving. It is the flip side of the marginal propensity to consume, and thus also quantifies the fundamental psychological law. The MPS is the slope of the saving line, which enters into the injections-leakages model. The multiplier is also related to the MPS.

• Marginal Propensity to Consume: This is the change in saving resulting from a change in income. Abbreviated MPC, this indicates the proportion of additional household income that is used for saving. It quantifies the fundamental psychological law and is the most important of these four measures. The MPC is the slope of the saving line, key to the slope of the aggregate expenditures line, and affects the magnitude of the multiplier.

 <= AVERAGE PROPENSITY TO CONSUME AVERAGE REVENUE =>

Recommended Citation:

AVERAGE PROPENSITY TO SAVE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: September 20, 2024].

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