Give an example of a Behavioural Equation in economics
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.