Engel'S Law

Definition

Engel's Law is an economic theory proposed by German statistician Ernst Engel in 1857. It states that as household income increases, the proportion of income spent on food decreases, while the proportion spent on other areas such as education and entertainment increases.

Origin

The origin of Engel's Law dates back to the mid-19th century when Ernst Engel, through his study of household expenditure patterns, discovered the relationship between income and spending structure. This finding was first published in 1857 and has since become a fundamental concept in the study of consumer behavior in economics.

Categories and Features

Engel's Law is primarily used to analyze changes in household consumption expenditure structure. Its main feature is that as income increases, the proportion of spending on basic necessities decreases, while spending on non-essential items increases. This pattern is common across households with different income levels, reflecting a trend of consumption upgrading.

Case Studies

A typical case is the economic development in China. Over the past few decades, as per capita income has increased, the proportion of household spending on food has gradually decreased, while spending on education, travel, and entertainment has significantly increased. Another example is the economic growth in the United States during the 20th century, where increased income led to higher proportions of spending on housing, transportation, and leisure activities.

Common Issues

Common issues investors face when applying Engel's Law include misunderstanding it as an absolute rule, overlooking cultural and social factors that influence consumer behavior. Additionally, Engel's Law does not apply to all goods and services, especially during economic instability when consumption patterns may change.