An Engel curve is a graphical representation of the relationship between a household's income and the quantity of a particular good or service that the household consumes. It is named after Ernst Engel, a 19th-century statistician who first described this relationship.
In the case of a normal good, the Engel curve slopes upward, meaning that as a household's income increases, the quantity of the good that the household consumes also increases. This relationship exists because a normal good is one that is in higher demand as a household's income rises. For example, if a household's income increases, it may choose to purchase more expensive, higher-quality versions of the good or to purchase more of the good overall.
There are several factors that can influence the slope of an Engel curve for a normal good. One factor is the price elasticity of demand for the good. If the good has a high price elasticity of demand, this means that changes in price have a large effect on the quantity of the good that is consumed. In this case, the Engel curve may be more steeply sloped, as a household may choose to significantly increase or decrease its consumption of the good in response to changes in price.
Another factor that can influence the slope of an Engel curve is the income elasticity of demand for the good. This refers to the degree to which changes in a household's income affect the quantity of the good that is consumed. If the income elasticity of demand for a good is high, this means that the quantity of the good consumed increases significantly as a household's income increases. In this case, the Engel curve may be more steeply sloped.
It is worth noting that the Engel curve is not a precise prediction of how a household's consumption of a good will change as its income changes. Instead, it is a general representation of the relationship between income and consumption that can be used to understand trends in consumer behavior.
Overall, the Engel curve for a normal good shows that as a household's income increases, the quantity of the good consumed also increases. This relationship is influenced by factors such as the price and income elasticities of demand for the good. Understanding the Engel curve can help businesses and policymakers understand how changes in income and price can affect consumer behavior.
Engel Curve Overview, Examples & Influence
The consumer will buy both of them if their prices are the same, i. Since the same amount each good will be consumed, the ICC will be a straight line through the origin with constant slope, as depicted by Fig. It shows the wages that employers are willing to pay for different quantities of labor. And the slope of these three lines is the same, which implies that the prices of the two goods are constant, while the budget line farther from the origin indicates a larger budget amount. The curve flattens as income rises meaning that for each additional dollar earned, the household is able to purchase less and less. The negative correlation between income and a bad lead to an interesting aspect of the Engel curve involving inferior goods.
Income Offer Curves and Engel Curves
In other words, the point H is not necessarily the point of intersection of any two or of all the three of the Engel lines that are given in Fig. This indicates a positive correlation between income levels and the good. On the other hand, if X or Y becomes an inferior good x to the consumer as his income rises beyond a certain level, the ICC would be bending to the y-or to the x-axis respectively. Continue this process, drawing an arc from the previous oval to an oval drawn above and to the right. People will first spend their incomes on the basic necessities of life because of the high but diminishing At a national level, the proportion of income spent on food, known as the 'Engel Coefficient', is sometimes used as a measure of that nation's standard of living.
The Engel Curve (With Diagram)
We can verify that steaks have positive income elasticity of demand at all points. In the Engel curve graph below we can see the familiar upward slope for a normal good followed by a backward bending section for inferior goods. Engel curves assess whether outdoor leisure is a luxury or a necessity. The Engel Curve and Income Offer Curve can also be affected by changes in income. The Engel curve, named after the German statistician Ernst Engel 1821-96 , is a relation between the demand for a good and the income of its buyers, the former depending on the latter. The adding-up restriction stems from the assumption that consumption always takes place at the upper boundary of the household's opportunity set, which is only fulfilled if the household cannot completely satisfy all its wants within the boundaries of the opportunity set. Each optimal choice, which occurs at tangent points, is partially comprised of a quantity of the good being analyzed.
