(Ernst) Engel's Law & Curves

(http://faculty.washington.edu/krumme/resources/engel.html)

"Engel's Curve"

a general reference to the line which shows the relationship between various quantities of a good a consumer is willing to purchase at varying income levels (ceteris paribus).

"Engel's Law" (associated with Ernst Engel, a [19th century] German statistician)

With rising incomes, the share of expenditures for food (and, by extension, other) products declines (= Engel found, based on surveys of families' budgets and expenditure patterns, that the income elasticity of demand for food was relatively low). The resulting shift in expenditures affects demand patterns and employment structures. [Engel's Law does NOT suggest that the consumption of food products remains unchanged as income increases! It suggests that consumers increase their expenditures for food products (in % terms) less than their increases in income]
"... je aermer eine Familie ist, einen desto groesseren Antheil von der Gesamtausgabe muss zur Beschaffung der Nahrung aufgewendet werden ..." (Ernst Engel 1857, 2. edition, 1896b, s.28-29). [see also: Income elasticity of demand] [Not to be confused with Friederich Engels, the collaborator of Karl Marx]

Supporting & Related Pages:

Internet Sites:

Engel, Ernst [Britannica]
b. March 26, 1821, Dresden, Saxony [Germany]
d. Dec. 8, 1896, Radebeul, near Dresden
German statistician remembered for the "Engel curve," or Engel's law, which states that the lower a family's income, the greater is the proportion of it spent on food...
Engel was head of the statistical department of Saxony from 1854 to 1858, and from 1860 to 1882 he headed the Prussian statistical department in Berlin....
Agriculture and economic development [Britannica]
As a country develops economically, the relative importance of agriculture declines. The primary reason for this was shown by the 19th-century German statistician Ernst Engel, who discovered that as incomes increase the proportion of income spent on food declines....
How Much Money Do People Have to Spend and What Do They Spend it on? Engel's Law [Harvard economist Hendrik Houthakker: "Of all the empirical regularities observed in economic data, Engel's Law is probably the best established."]
Computer Cases for Contemporary Business, Ch.13 ( Engel's Law in Marketing)

Graphs:

Source: Source: Steenkamp, 1996.

Literature:

Engel, Ernst. Die Lebenskosten belgischer Arbeiterfamilien frueher und jetzt. Ermittelt aus Familienhaushaltsrechnungen und vergleichend zusammengestellt. Bulletin of the International Institute of Statistics, 9, 1895, pp.57ff.

---, Vortrag ueber die statistische Tragweite der Familienbudgets, Bulletin of the Intern.Inst.of Stat. 6, 1892, pp.178ff.

---, La consommation comme mesure de bien-etre des individus, des familles et des nations, Bulletin of the Intern.Inst.of Stat. 2, 1887, pp.50ff.

---, Der Kostenwert des Menschen. Berlin 1983.

FAO, Prospects for the Future: Nutritional, Environmental and Sustainable Food Production Considerations - Changes in Cultural and Consumer Habits by W. Bruce Traill, Professor of Food Management and Marketing, University of Reading, UK Conference on International Food Trade Beyond 2000: Science-Based Decisions, Harmonization, Equivalence and Mutual Recognition Melbourne, Australia, 11-15 October 1999

The most well known relationship is between income and the proportion of expenditure on food, Engel's Law stating a negative relationship (Figure 2). The law holds within a country (the poor spend a higher proportion of their income on food than the rich in the same society), and at the aggregate level (poor countries spend more of their GNP on food than wealthy ones-in the United States the proportion is around 10%, but can be over 50% in very poor countries). Although the share of expenditure on food decreases with income, total expenditure per capita on food does rise as income per capita rises as people trade up to higher value products. Figure 3 shows trigger levels employed by Unilever to adjust its product portfolio to a country's income level.

FAO, AGRICULTURAL PRICE AND MARKETING POLICY, CHAPTER 3 : DEMAND ANALYSIS AND ESTIMATION [The estimation of income elasticities of demand is vital if demand projections are needed in order to evaluate policies. The income elasticity can be analyzed diagrammatically; Figure 3.6 shows an Engel curve, which is the relationship between real income (nominal income divided by the index of consumer prices) and consumption of a good, labelled X once again.]

Fischer, Gordon. Poverty Measurement Working Papers (U.S.Census): From Hunter to Orshansky: An Overview of (Unofficial) Poverty Lines in the United States from 1904 to 1965, 1997.

On the basis of his studies, he (Ernst Engel) formulated the empirical relationship which became known as Engel's Law, which he stated (in two articles) as follows: "The poorer is a family, the greater is the proportion of the total outgo which must be used for food....The proportion of the outgo used for food, other things being equal, is the best measure of the material standard of living of a population."

Houthakker, Hendrik S., "An International Comparison of Household Expenditure Patterns, Commemorating the Century of Engel's Law," Econometrica 25 (1957), pp.532ff. JSTORS-Download

International Institute for Labour Studies (ILO) Growing points in poverty research: Labour issues Chapter 2: Correlates, causes and consequences

Recently, a major challenge to the view that undernutrition is due mainly to poverty has arisen from Behrman's work, and more generally from a number of observations that, properly measured, energy intake at the mean rises by only 1 to 3 per cent in poor populations when income (or expenditure) rises by 10 per cent . This finding -- together with the fact that expenditure-elasticity of food outlay among the very poor is increasingly found to disobey Engel's Law, i.e. to be not significantly below unity strongly suggests that the poor as a whole do not perceive extra calories as an overriding unmet need.

Steenkamp, J-B E M (1996). Dynamics in consumer behaviour with respect to agricultural and food products, in Wierenga, B, Grunert, K G, Steenkamp, J-B E M, Wedel, M and van Tilburg, A (eds), Agricultural marketing and consumer behaviour in a changing world, Proceedings of the 47th Seminar of the European Association of Agricultural Economists, Wageningen, 13-15 March, 15-38.

Strulik, Holger. (Hamburg) On Demographic Transition, Structural Change, and Economic Growth and Stagnation

The paper analyzes an economy with an agrarian and an industrial sector. Demand is determined by Engel's Law. Population growth follows a non--linear income dependent path according to the theory of demographic transition.

Carle C. Zimmerman, "Ernst Engel's Law of Expenditures for Food," Quarterly Journal of Economics, Vol. 47, No. 1, November 1932, p. 80. (JSTORS-Downlaod)

Zweimueller, Josef: Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth [This paper analyzes the impact of inequality on growth when technical progress is driven by innovations and consumers have hierarchic preferences.]

(Ernst) Engel's Law & Curves

(http://faculty.washington.edu/krumme/resources/engel.html)

As a country develops economically, the relative importance of agriculture declines. The primary reason for this was shown by the 19th-century German statistician Ernst Engel, who discovered that as incomes increase the proportion of income spent on food declines....

The paper analyzes an economy with an agrarian and an industrial sector. Demand is determined by Engel's Law. Population growth follows a non--linear income dependent path according to the theory of demographic transition.

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