# Engel's Law

## What is 'Engel's Law '

An economic theory introduced in 1857 by Ernst Engel, a German statistician, stating that the percentage of income allocated for food purchases decreases as income rises. As a household's income increases, the percentage of income spent on food decreases while the proportion spent on other goods (such as luxury goods) increases.

For example, a family that spends 25% of their income on food at an income level of \$50,000 will spend \$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.

## BREAKING DOWN 'Engel's Law '

Engel's Law similarly states that lower income households spend a greater proportion of their available income on food than middle- or higher-income households. As food costs increase, both for food at home (such as groceries) and food away from home (for example, at a restaurant), the percentage spent by lower income households is expected to increase.