Economics • Economic BasicsMedium
What is the primary implication of Engel's Law regarding household consumption expenditure patterns as income rises?
A. The proportion of income spent on food increases progressively as household income grows
B. The proportion of income spent on food decreases while expenditure on luxuries increases✓ Correct Answer
C. The percentage allocation for housing and utilities remains strictly constant across all income brackets
D. Savings constitute a declining fraction of total disposable income at higher income levels
💡 Solution & Explanation
Engel's Law states that as household income rises, the percentage of income spent on food decreases, even while absolute expenditure on food may increase. This empirical observation reflects the low income elasticity of demand for basic food items compared to luxury goods and services. Consequently, poorer households allocate a much larger share of their budget to sustenance than wealthier households. The income elasticity of demand for luxury items is greater than one.
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