Engel's law

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Engel's law

a principle that states that consumers will tend to spend an increasing proportion of any additional income upon LUXURY GOODS and a smaller proportion on STAPLE GOODS, so that a rise in income will lower the overall share of consumer expenditures spent on staple goods (such as basic foodstuffs) and increase the share of consumer expenditures on luxury goods (such as motor cars). See INFERIOR PRODUCTS, INCOME ELASTICITY OF DEMAND, INCOME CONSUMPTION CURVE, AGRICULTURAL POLICY.
References in periodicals archive ?
6) Fourth, it measures the economies-of-scale effect in household consumption by including the household-size as an explanatory variable in Engel's curve equation.
In estimating Engel's curve, the consumption of different commodities is usually taken in terms of expenditure rather than quantities, because of the problem of aggregation of heterogeneous items, and because expenditure takes care of the changes in both the quantity and the quality of the goods consumed.
Both linear and double-logarithmic functional forms of the Engel's curve are estimated with the help of the Ordinary Least Square (OLS) method.
The behavioral approach to consumption should thus be able to explain a good deal of the differences in the shapes of Engel's curves and thus in the income elasticities of the underlying goods and services.
According to their findings it is important to establish the presence of nonlinearity in the micro-level Engel's curves and the need for interactions with household-specific characteristics, since either of these would rule out simple linear aggregation.