125
See also: Utility and satisfaction 114–15 ■ Spending paradoxes 116–17 ■
Supply and demand 108–13 ■ The competitive market 126–29
INDUSTRIAL AND ECONOMIC REVOLUTIONS
Engel studied the budgets of 199
households in Belgium and showed
that while demand for basic
necessities such as food grew less
quickly as income rose, demand for
luxuries—such as vacations—grew
at least as quickly as the increase
in income. Economists have
identified two types of products
or goods. The first—normal goods
—are those where demand rises in
line with income. Luxuries are a
special type of normal good, known
as a superior good, where demand
rises proportionately more than
the rise in income. The second type
of goods—inferior goods—see
demand fall as income rises.
Some groups of goods, such
as food, contain both luxuries
and necessities (such as caviar and
bread). This means that it may be
misleading to judge the impact of
increasing income on food as a
group. A further complication is
that a product is not always normal
or inferior—this may change at
different levels of income. Given
extra income, very poor people
might buy more bread, those on
high incomes might buy more
caviar, but the super-rich might
choose to give up caviar and dine
on edible gold flakes instead. ■Ernst Engel
Born in Dresden, Germany,
in 1821, Ernst Engel studied
mining at the École Des Mines
in Paris, France, where he
came under the influence of
Frédéric Le Play, a pioneer in
the study of family budgets.
On his return to Germany
Engel became the director of
the statistical bureaus of
Saxony and then Prussia,
where he formulated the law
that was to bear his name.
In 1881, Engel wrote an
article attacking Chancellor
Otto von Bismarck’s
agricultural protectionism
and was promptly “retired”
on health grounds. Engel was
part of the German historical
school of economics. A prolific
writer, he believed in reforming
policy to improve the lives of
the working classes. Perhaps
his greatest legacy was his
influence in the creation of
institutions for statistical
analysis in many European
countries. Engel died near
Dresden in 1896, aged 76.Key works1857 Production and
Consumption in Saxony
1883 The Worth of People
1895 The Cost of Living for
Belgian WorkersYour pay increases and you go shopping. If the product is...... inferior...... buy less.... normal...... buy more.... superior...If you get a pay raise, buy caviar not bread.
The poorer the household,
the larger the proportion
of its budget dedicated
to nourishment.
Ernst Engel