Economics Marginal Utility Questions Long
The concept of Engel curve is an important tool in economics that helps us understand the relationship between income and the quantity of a particular good or service consumed. It is named after the German statistician Ernst Engel, who first introduced this concept in the mid-19th century.
An Engel curve is a graphical representation of the relationship between the quantity of a good or service consumed and the level of income. It shows how the demand for a specific good or service changes as income levels vary, while keeping other factors constant. In other words, it illustrates the income elasticity of demand for a particular good.
The Engel curve typically has an upward-sloping shape, indicating that as income increases, the quantity demanded of the good or service also increases. This positive relationship between income and quantity demanded is known as a normal good. Examples of normal goods include clothing, housing, and leisure activities.
The relationship between the Engel curve and marginal utility lies in the concept of diminishing marginal utility. Marginal utility refers to the additional satisfaction or utility gained from consuming one additional unit of a good or service. According to the law of diminishing marginal utility, as a person consumes more of a good, the additional satisfaction derived from each additional unit decreases.
When we analyze the Engel curve in relation to marginal utility, we can observe that as income increases, individuals tend to consume more of a particular good or service. This increase in consumption is driven by the fact that as income rises, individuals have more resources available to satisfy their needs and wants. However, the additional satisfaction gained from consuming each additional unit of the good diminishes, as indicated by the diminishing marginal utility.
Therefore, the Engel curve shows the income-consumption relationship, while the concept of marginal utility helps explain the diminishing satisfaction derived from consuming additional units of a good. Together, they provide insights into how changes in income affect the quantity demanded of a specific good or service and the level of satisfaction derived from consuming it.