ENGEL’S LAW

ENGEL’S LAW

TOPIC: Economy

Context- The pandemic induced lockdowns resulted in a sharp rise in food share across rural and urban India and among all socioeconomic groups comprising various castes and religions, but at different rates.

Concept-

• The shock of the pandemic caused breakdowns in food supply chains and a fall in food demand, a consequence of loss of income.
• The lockdowns resulted in a sharp rise in food share across rural and urban India and among all socioeconomic groups comprising various castes and religions, but at different rates.
• During the peak of the first wave (September 2020), food expenditure shares declined among all households in urban areas.
• In rural areas, SCs and STs saw a rise in food shares despite relaxation of restrictions.
• Different religious groups also experienced a sharp rise in the share of food expenditure in both rural and urban areas.

What is Engel’s Law:

• A version is that the poorer a family, the greater 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.
• Engel’s Law is a 19th century observation that as household income increases, the percentage of that income spent on food declines on a relative basis.
• This is because the amount and quality of food a family can consume in a week or month is fairly limited in price and quantity.
• As food consumption declines, luxury consumption and savings increase in turn.
• For example, a family that spends 25% of their income on food at an income level of $50,000 will pay $12,500 on food. If their income increases to $100,000, it is not likely that they will spend $25,000 (25%) on food, but will spend a lesser percentage while increasing spending in other areas.