Engel Curve - Shape

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.