CBSE 2016 Class 12 Economics Delhi Set-1

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Question : 15
Total: 18
Given Consumption curve, derive saving curve and state the steps taken in the process of derivation. Use diagram.
Solution:  
Consumption + saving is always equal to income because income is either consumed or saved. It implies that consumption and saving curves representing consumption and saving functions are complementary curves.
In part A,CC curve shows consumption function whereas 45∘ line represents income. C curve intersects 45∘ line at point B at which BR=OR i.e.,.consumption = income. Point B is the break even point showing zero saving. It states that saving curve must intersect X-axis at the same income level where consumption curve and 45∘ line intersects. Left of point B is negative saving and to the right of point B is positive saving.
In part B, we derive saving function in the form of saving curve. In part A, the amount of saving is the vertical distance between C curve and 45∘ line. By plotting, the vertical distances of saving/dissaving and by joining them, we derive a saving curve. In part A the vertical distance OC (dissaving) is plotted as OS1 below X-axis in part-B. At OR level of income in Part A, vertical distance at point B is shown as point B1 on X-axis in lower part of figure is nil. LM of part A is shown as L1M1 in part-B. By joining points S,B1 and L1 in lower segment, we get saving curve. Thus saving curve is derived from consumption curve.
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