Engel's law

EngelsLaw

Engel law curve

Engel's Law is an economic theory that posits as a family's income increases, the proportion of income spent on food decreases, assuming all other factors remain constant. This law was named after the German statistician Ernst Engel, who first introduced the concept in 1857. Engel's Law suggests that the income elasticity of demand for food is less than one. That is, as income rises, the percentage of income allocated to food expenditure declines, while the proportion spent on other goods and services, such as education, healthcare, and leisure activities, increases.

Background

Ernst Engel, observing household consumption patterns, found that the lower a family's income, the larger the proportion of it was spent on nourishment. This observation led to the formulation of Engel's Law, which has since been supported by numerous studies across different countries and time periods. Engel's analysis was based on detailed household expenditure data, which allowed him to establish a systematic relationship between income levels and spending habits.

Implications of Engel's Law

Engel's Law has several important implications for economics, sociology, and public policy. Firstly, it provides a measure of the standard of living within a country. A lower proportion of income spent on food typically indicates a higher overall standard of living. Secondly, the law can be used to infer poverty levels and to identify families that are more vulnerable to economic shocks. Thirdly, Engel's Law is crucial for understanding consumer behavior, particularly in the context of economic development and the transition from a subsistence economy to a more diversified industrial and service economy.

Criticism and Limitations

While Engel's Law has been widely accepted and applied, it is not without its critics. Some argue that the law may not hold in high-income countries where food consumption patterns change due to factors such as increased health consciousness or the availability of a wider variety of food. Additionally, the advent of new technologies and changes in food production and distribution may alter the relationship between income and food expenditure.

See Also

• Consumer theory
• Income elasticity of demand
• Standard of living
• Poverty threshold