Shape
The shape of Engel curves depend on many demographic variables and other consumer characteristics. A good's Engel curve reflects its income elasticity and indicates whether the good is an inferior, normal, or luxury good. Empirical Engel curves are close to linear for some goods, and highly nonlinear for others.
Graphically, the Engel curve is represented in the first-quadrant of the Cartesian coordinate system. Income is shown on the Y-axis and the quantity demanded for the selected good or service is shown on the X-axis.
For normal goods, the Engel curve has a positive gradient. That is, as income increases, the quantity demanded increases. Amongst normal goods, there are two possibilities. Although the Engel curve remains upward sloping in both cases, it bends toward the y-axis for necessities and towards the x-axis for luxury goods.
For inferior goods, the Engel curve has a negative gradient. That means that as the consumer has more income, they will buy less of the inferior good because they are able to purchase better goods.
For goods with Marshallian demand function generated from a utility function of Gorman polar form, the Engel curve has a constant slope. Economist Ameek from University of Auckland also contributed on research utility function of Gormon Polar Form and concluded that these types of goods have an Engle curve with fixed slope.
Many Engel Curves feature saturation properties in that their slope tends to diminish at high income levels, which suggests that there exists an absolute limit on how much expenditure on a good will rise as household income increases This saturation property has been linked to slowdowns in the growth of demand for some sectors in the economy, causing major changes in an economy's sectoral composition to take place.
Read more about this topic: Engel Curve
Famous quotes containing the word shape:
“I know that each stage is not going to last forever. I used to think that when he was little. Whenever he was in a bad stage I thought that he was going to be like that for the rest of his life and that I’d better do something to shape him up. When he was in a good state, I thought he was going to be a perfect child and I would never have to worry; he was always going to stay that way.”
—Anonymous Parent of An Eight-Year-Old. As quoted in Between Generations by Ellen Galinsky, ch. 4 (1981)
“Most revolutionaries are potential Tories, because they imagine that everything can be put right by altering the shape of society; once that change is effected, as it sometimes is, they see no need for any other.”
—George Orwell (1903–1950)
“It is as real
as splinters stuck in your ear. The noise we steal
is half a bell. And outside cars whisk by on the suburban street
and are there and are true.
What else is this, this intricate shape of air?
calling me, calling you.”
—Anne Sexton (1928–1974)