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Economic Goals

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  • December 2010
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•Engel's law is an observation in economics stating that, with a given set of tastes and preferences, as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. In other words, the income elasticity of demand of food is between 0 and 1. The law was named after the statistician Ernst Engel (1821–1896). Engel's Law doesn't imply that food spending remains unchanged as income increases: It suggests that consumers increase their expenditures for food products (in % terms) less than their increases in income.[1] Engel's Law states that household expenditures on food in the aggregate decline as income rise; in other words, the income elasticity of demand for food in the aggregate is less than one a decline toward zero with income growth. [2] One application of this statistic is treating it as a reflection of the living standard of a country. As this proportion or "Engel coefficient" increases, the country is by nature poorer, conversely a low Engel coefficient indicates a higher standard of living.

•An Engel curve describes how a consumer’s purchases of a good like food varies as the consumer’s total resources such as income or total expenditures vary. Engel curves may also depend on demographic variables and other consumer characteristics. A good’s Engel curve determines its income elasticity, and hence whether the good is an inferior, normal, or luxury good. Empirical Engel curves are close to linear for some goods, and highly nonlinear for others. Engel curves are used for equivalence scale calculations and related welfare comparisons, and determine properties of demand systems such as aggregability and rank. In economics, an Engel curve shows how the quantity demanded of a good or service changes as the consumer's income level changes. It is named after the 19th century German statistician Ernst Engel. Graphically, the Engel curve is represented in the first-quadrant of the cartesian coordinate system. Income is...

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