engleski

Income as a factor of potato consumption

Engel's Law is the observed phenomenon that when a family’ s income increases, the proportion of money they spend on food decreases. As an extension of this, the goods are divided into the two groups – inferior and normal goods. In consumer theory, an inferior good is a good that decreases in demand when the consumer's income rises, unlike normal goods, for which the opposite is observed. As an inferior good, lots of sources use potato as an example. According to that, the potato is marked as a cheap, low-valued food article. One of the most accepted methods for life standard determination is Gross Domestic Product per capita. Using this method, significant increase of life standard in Croatia can be noticed. According to the data from Yearly Statistic GDP in Croatia has increased by 278 percent during period 1992-2005. Consumption of potato at the same period has not changed. According to official statistic data about potato consumption, yearly potato consumption per capita in 2005 was 45, 0 kg. It was 3, 7 percent more then in 2002 when the potato consumption per capita was 43, 4 kg. Income elasticity can be easily calculated as ratio of percent change of potato consumption and percent change of income. In this case, income elasticity for potato is 0, 01328 what is clear indicator of potato income inelasticity in Croatia. Therefore, one can concludes that potato on Croatian example is normal, inelastic good.

potato, income elasticity

nije evidentirano