Give an example of a Behavioural Equation in economics

Answer 1

One example of a behavioural equation in economics is the consumption function, which represents the relationship between consumption and disposable income. The equation is typically represented as:

C = a + bY

Where:
- C represents consumption expenditure
- a represents autonomous consumption (consumption that occurs even when disposable income is zero)
- b represents the marginal propensity to consume (the proportion of additional disposable income that is spent on consumption)
- Y represents disposable income

This equation helps economists understand how changes in disposable income affect consumption and overall economic activity.