Engel's law of consumption
Engel's law: as family income rises, the percentage spent on food falls, even though the rupees spent on food may rise. The food share indicates the standard of living.
The law
Ernst Engel, a German statistician, studied the budgets of Belgian working-class families and published his findings in 1857. His main finding, known as Engel's law, is that as income increases, the proportion (percentage) of income spent on food decreases. A richer family usually spends more rupees on food than a poorer one, but food takes a smaller share of its total budget, leaving a larger share for other needs and comforts. Home-management texts present his findings as four laws of consumption (see the table); the food rule is the one economists call Engel's law. The share spent on food, the Engel ratio, is used as an index of the standard of living: the lower the food share, the better off the family.
Engel's laws of consumption: what happens as income rises
| Item of expenditure | Share of total spending as income rises |
|---|---|
| Food | Decreases |
| Clothing | Remains about the same |
| House rent, fuel and light | Remains about the same |
| Education, health, recreation and other comforts | Increases |
| Savings (added in many texts) | Increase |
Illustration with three families
| Family | Monthly income (₹) | Spent on food (₹) | Food share |
|---|---|---|---|
| A (low income) | 15,000 | 7,500 | 50% |
| B (middle income) | 40,000 | 14,000 | 35% |
| C (high income) | 1,00,000 | 20,000 | 20% |
Uses and limits
- In the illustration, Family C spends more than twice Family A's rupees on food, yet food is less than half as large a share of its income.
- Measures standard of living: a high food share signals poverty, a low one prosperity.
- Used in household consumer expenditure surveys, such as India's NSSO surveys, to track how living standards change.
- Helps a family judge its own budget: a very high food share leaves little for health, education and savings.
- Limits: family size, food habits, prices, eating out and festivals also change the food share, so compare families of similar size and place.
A high food share does not guarantee good nutrition. Low-income families may spend half their income on food yet still lack protein and micronutrients, so a dietitian's job is to get more nutrition per rupee: pulses, millets, eggs, seasonal greens. This is why the ration shop (PDS) and noon-meal schemes matter most to families with the highest food share.
2 marks: “State Engel's law.” As family income increases, the percentage of income spent on food decreases, although the amount spent on food may increase.
5 marks: “Explain Engel's law of consumption with an example.” State the law and its source, give the four observations (food, clothing, rent-fuel-light, comforts) and illustrate with the food shares of two or three families.
10 marks: “Explain Engel's law of consumption and its significance in family budgeting.” State the law with its background, tabulate the observations, illustrate food shares at three income levels, then explain its use as a standard-of-living index, its limits and the nutrition link.
Rich family, small food slice. As income goes up, food's share of the budget goes down and the share for comforts goes up.