Engel Curve
What is Engel Curve?
An Engel curve shows how the quantity of a good a consumer buys changes as income changes, holding prices constant: upward-sloping for normal goods, downward for inferior goods.
Named after statistician Ernst Engel, the curve plots income against quantity demanded of a single good. A normal good has an upward-sloping Engel curve (more income, more bought), while an inferior good has a downward-sloping one over some income range. The steepness reflects income elasticity: necessities flatten as income rises (income elasticity between 0 and 1), whereas luxuries rise more than proportionally (income elasticity above 1). It is the income analogue of the ordinary (price) demand curve.
Engel Curve: a worked example
Follow the Ortega household as monthly income rises from $2,400 to $3,600, a 50 percent increase, with every price unchanged. Bus rides fall from 40 to 30 a month, a 25 percent drop, so income elasticity is -25 / 50 = -0.5 and the bus-ride Engel curve slopes down. Restaurant meals climb from 4 to 10, a 150 percent jump, giving 150 / 50 = 3 and a steep upward curve. Rice rises from 8 kg to 10 kg, 25 percent, giving 0.5, an upward curve already flattening. One household, three goods, three different Engel curve shapes.
The mistake students make with engel curve
The frequent error is treating normal and inferior as permanent labels stamped on a good, which implies each good owns one Engel curve slope forever. Engel curves often bend. Bus travel slopes upward for a household too poor to afford any fare at all, then turns downward once a car becomes reachable, so the same good is normal at low income and inferior at high income. The label describes a stretch of the curve, not the good.
Engel Curve questions
What is the difference between an Engel curve and a demand curve?
An Engel curve plots income against quantity while holding every price fixed. An ordinary demand curve plots price against quantity while holding income fixed. They answer different questions: the demand curve asks how much you buy when this good gets cheaper, the Engel curve asks how much you buy when you get richer. Losing track of which variable is being held constant is the usual source of confusion.
What does a downward-sloping Engel curve mean?
A downward-sloping Engel curve means the good is inferior over that income range: the household buys less of it as income rises, even though its price has not moved at all. Store-brand staples, long-distance bus tickets and secondhand appliances often behave this way. Inferior is a statement about how a household reacts to income, not a judgment about how good the product is.
How do you find income elasticity from an Engel curve?
Income elasticity equals the percentage change in quantity divided by the percentage change in income, which is the Engel curve's slope scaled by income over quantity. A value above 1 marks a luxury and gives a curve rising faster than income; a value between 0 and 1 marks a necessity and gives a curve that flattens out; a negative value marks an inferior good and bends the curve downward.
Related terms
Common comparisons
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