Engel's law

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Engel's law is an observation in economics stating that, with a given set of tastes and preferences, as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. In other words, the income elasticity of demand of food is less than 1.

The observation was made by Ernst Engel, director of the Bureau of Statistics in Prussia, in a paper published by him in 1857.

Engel's Law is the observed phenomenon that when a familys income increases, the proportion of money they spend on food decreases.

[edit] Engel curve

An Engel curve shows how the quantity demanded of a good or service changes as the consumers income level changes.

Graphically, the Engel curve is represented in the first-quadrant of the cartesian coordinate system. Income is shown on the Y-axis and the quantity demanded for the selected good or service is shown on the X-axis.

For normal goods, the Engel curve has a positive slope. That is, as income increases, the quantity demanded increases. For inferior goods, the Engel curve has a negative slope. That means that as the consumer has more income, they will stop buying the inferior goods because they are able to purchase better goods. For goods with Marshallian demand function generated by a utility in Gorman polar form, the Engel curve has a constant slope.