Economics • Economic BasicsMedium
What is the primary implication of 'Engel's Law' regarding consumer expenditure patterns?
A. As household income rises, the proportion of income spent on food decreases✓ Correct Answer
B. Consumer demand for luxury goods falls as disposable income increases
C. Savings rates remain constant across all income brackets in a developing nation
D. Expenditure on durable goods varies inversely with real interest rates
💡 Solution & Explanation
Engel's Law states that as family income rises, the percentage of income spent on food declines, even if absolute expenditure on food may increase. This regularity is observed across diverse demographic groups and international comparisons of living standards. Higher income households allocate a larger share of marginal income to savings, investments, and luxury services. Economic development planners utilize Engel curves to measure shifting consumption baskets over time.
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