Economics • Economic BasicsMedium
How does the 'Engel's Law' characterize the spending pattern of households as their income increases?
A. The proportion of income spent on food increases proportionally with income growth
B. The proportion of income spent on food decreases, even if absolute expenditure on food may rise✓ Correct Answer
C. Expenditure on luxury goods remains entirely constant across all income brackets
D. Savings ratios drop to zero as households reach middle-income status
💡 Solution & Explanation
Ernst Engel observed that as household income rises, the percentage of income allocated to food purchases decreases, even though the actual physical quantity or quality of food consumed may increase. This law reflects the income elasticity of demand for essential food items being less than one. Luxury goods and services typically experience rising expenditure shares as income climbs. This principle remains a foundational tenet in consumer behavior and poverty line calculations.
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