WBCS.LIVE practice question

Engel's Law in microeconomics observes that as a household's income increases, what happens to their spending behavior?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. The proportion of income spent on luxury goods strictly decreases.
  2. The absolute amount of money spent on food decreases.
  3. The proportion of income spent on food decreases.
  4. The proportion of income saved decreases to zero.

Correct answer and explanation

Correct answer: The proportion of income spent on food decreases.

Explanation: āœ… Correct Answer: C) The proportion of income spent on food decreases. šŸ“š Explanation: Engel's Law is an established microeconomic observation stating that as a household's income increases, the proportion of income spent on food decreases. While the absolute amount of money spent on food might rise, its percentage share of total expenditure drops because food is a basic necessity with highly inelastic demand. This law is widely used by economists to gauge the living standards and economic well-being of different demographic groups.