Livestock Economics, Marketing and Business Management

ENGEL'S LAW

• The 19^th century statistician Engel noticed that any additional income is tended to be spent more on luxuries and non essentials than on essentials and his observation is commonly known as Engel’s law which can be postulated as follows.
• “The proportion of personal expenditure devoted to necessities decreases as income rises”. It can be illustrated with the help of following figure.
• The Engel’s law represented diagrammatically illustrates that expenditure on food and clothes form a larger proportion of total expenditure of people with low incomes than of those with higher incomes. (Click to view graph)

Practical Importance

• The concept of elasticity of demand figures predominantly in both the theoretical analysis of the economists and the practical decision of the businessmen and the government.

Theoretical economics

• To define perfect competition in selling a good.
• As a helpful tool in analysing problems connected with changes in the conditions of supply.

Business decision

• Super market: When it cuts the price of a good the supermarket expects a considerable expansion in demand by winning customers from retailers selling at a higher prices.
• Monopolists: A monopolist looks at the demand schedule for his good and fixes the quantity and thus the price at which he makes profit.This is because he is not faced with the perfectly elastic demand curve.

Government policy

• In fixation of sales tax.
• Imposition of selective tax or subsidy on goods will affect the size of the industry.