Economics • Economic BasicsMedium
In the theory of consumer behavior, what does the 'Engel's Law' state regarding consumer spending?
A. As household income rises, the proportion of income spent on food decreases, other things remaining equal.✓ Correct Answer
B. Consumer spending on luxury goods remains constant regardless of fluctuations in disposable income.
C. The marginal propensity to consume is always equal to one minus the marginal propensity to import.
D. Savings are a negative function of income at very low levels of subsistence.
💡 Solution & Explanation
Engel's Law states that as household income rises, the proportion of income allocated to food decreases, even if total expenditure on food may increase in absolute terms. Alternative statements concerning luxury goods or savings misrepresent the core behavioral pattern identified by Ernst Engel regarding consumer budgets. This empirical observation holds true across diverse socioeconomic demographics globally.
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