Question

Assume that a household earning an annual income of $1000 enters the middle class, while a household earning $4000/year enters the upper class.

When households move from extreme poverty to just being poor, energy use does not increase by much. These households typically use their growing incomes to consume more calories or higher quality calories. At the other end of the income distribution, when households move from middle to upper middle class, their energy use also does not change by much. It’s when households move out of poverty and into the middle class that their energy consumption really jumps.

a. Sketch an Engel curve showing how energy consumption varies with income for Vietnamese households earning less than $1000 per year. Be sure to label the axes.

b. Now extend the Engel curve to show how energy consumption varies with income for Vietnamese households earning between $1000 and $4000. How and why does it differ from the shape of the Engel curve for lower income households?

Answer 1

Solution: a noel curve Energy consumption - o 500 louo 1870 zewo 2570 300 3520 You Income ($) Since the energy consumption does not siset rise by much, engel curve will be nearly flat upto the income level of $1000. This is shown by portion of of engel unve. b. when income level jamms lies between $100 and $ 4000, energy consumption really jumps. This means a greater part of income increase is spent on energy consumption. This is shown by portion AB. of engel curve which is steeper than the portion on corresponding to the low income devel.