What is Engel's coefficient?

Engel's coefficient, also known as the Engel curve, is a concept in finance and economics that measures the relationship between household income and expenditure on a particular good or service. The coefficient is calculated by dividing the expenditure on a specific good or service by total household income. The Engel coefficient is used to analyze consumer behavior and spending patterns. It provides insights into how changes in income levels impact the proportion of income that households allocate to different categories of goods and services. For example, as income increases, the proportion of income spent on basic necessities such as food and housing is expected to decrease, while the proportion spent on luxury items and discretionary purchases is likely to increase. In finance, Engel's coefficient is often used to assess the impact of changes in income distribution on consumer demand and purchasing power. It is also used by policymakers and economists to evaluate the welfare and standard of living of different income groups within a population. Overall, Engel's coefficient is an important tool for understanding consumer behavior and making informed decisions about resource allocation, income distribution, and social welfare policies.