'Consumption function curve of an involuntary unemployed workers start from some positive level on Y-axis even at zero level of Income.' Justify the given statement.

Question

Accepted Answer

The consumption function curve starts from a positive level on the Y-axis even at zero income because of autonomous consumption. Autonomous consumption (c̄) represents the minimum level of consumption that must occur regardless of income. Even when income is zero, households must consume basic necessities like food, shelter, and clothing. This consumption is financed through borrowing or dissaving (drawing from past savings). The positive intercept of the consumption function on the Y-axis (at zero income) represents this autonomous consumption. It indicates that consumption never falls below this level, even in the absence of current income. The consumption function is C = c̄ + bY, where c̄ > 0, ensuring a positive consumption level at Y = 0.