Engel's Law

Posted in Finance, Accounting and Economics Terms, Total Reads: 1991

Definition: Engel's Law

It is an economic theory given in 1857 by Ernst Engel who was a German statistician. Engel's law states that the if everything else remains same, the percentage allocation of income on food products decrease and there is an increase in income level of a person.

 Engel's Law

For example, suppose a family spends 10% of their income on food at an income level of Rs. 1,00,000 i.e. Rs. 10,000. Now if their income increases to Rs. 2,00,000, it is likely that they will spend an amount less than Rs. 20,000 (10%) on food, while increasing spending in other areas.

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