Fitting of Engel Curve

Fitting of Engel Curve pastoral Maharashtra managerial Economics I Section D Group 6 Completed low the Guidance of Prof. Kaushik Bhattacharya September 2011 Indian bestow of Management, Lucknow Submitted on September 5th, 2012 ? Executive abridgment This study aims to estimate and analyze the family in the midst of the periodical per capita phthisis on intellectual nourishment and the monthly per capita keep down usance for households in rural Maharashtra. This relation is estimated by using the Engel Curve Model which quizs that as the income levels rise the percentage use on diet items decreases.The National Sample cogitation Organisation (NSSO) conducted an all-India go over of households and unorganised serving enterprises in the 63rd round of NSS during July 2006-June 2007. prospects on consumer use of goods and serve ar being conducted once in every five age on a large test of households from the twenty-seventh round (October 1972 September 1973). For th is project info from the 63rd Round of the National Sample lot was utilize as a sample for abridgment. The retroflexion compendium was carried out using ana put downue, Working-Lesser and Double Log Models.The income ginger nut was mensurable in apiece case which corroborate the fact that food is a urgency good. Qualitative doers such(prenominal) as seasonality, calling and social group were in addition corporal into the regression analysis using blank unsettleds. A multivariate regression analysis revealed the prominence of clientele as a relatively more signifi sightt factor comp atomic number 18d to the others factors. The analysis is subject to certain limitations callable to the assertions made with the most primary assumption being that the bring expenditure on all goods is representative of the income of the individual.Other limitations arising out of the satisfy of the survey have likewise been listed. contents Executive Summary2 Introduction4 Underst anding the info6 selective instruction Collection6 Data processing6 Function reflexion6 Regression Analysis7 ? Introduction The constitution of a particular good can be determined by an authorized statement known as Income press stud which wait ons us classifying the good as each lowly, a necessity or luxury. This parameter allows us to predict what goods will be determined by a friendship during diverse stages of development and provide insights into the demeanour of various sections of society to that good.In todays economic scenario Income shot of food in particular is of major significance. From a per descriptorance perspective, it is important to determine the alliance between the food expenditure and income. This will help in predicting the demand in a growing economy and thus scale down the demand-supply gap. Form a policy perspective, the income elasticity becomes all the more important as government aims to have an inclusive development. keen the income el asticity with respect to food expenditure will help in soma policies which fulfil their aim of better economy.Income elasticity can be estimated empirically done Demand curves and Engel Curves. Engel curves describe how household expenditure on particular goods or services depends on household income. The name comes from the German statistician Ernst Engel (18211896) who was the first one to inquire this relationship systematically in an name published about 150 years ago. The best-known single result from the term is Engels law, which states that the poorer a family is, the larger the calculate percent it spends on nourishment.Engel curves may also depend on demographic variables and other consumer characteristics. Empirical Engel curves are close to running(a) for some goods, and highly non unidimensional for others. Engel curves are employ for equivalence scale calculations and related to welfare comparisons, and determine properties of demand systems such as agreeabilit y and rank. Engel curves for normal goods Engel curves for inferior goods The relationship between the food custom and income on the Engel Curve has been analysed through and through various nonpluss, each with its own benefits.The three manikins used in this study are 1. Linear Regression Model It assumes a linear relationship between the two variables. It uses the equivalence Y = A0 + A1X. The elasticity is calculated through this model using the compare ? = ( X/Y) dy/dx = (X/Y) A1 2. Working-Lesser Model This model uses the equality Wi=A0+AilnX. Working-Lesser Model is the first empirical model applied in the study of employment analysis In the Working-Leser model, each share of the food item is simply a linear function of the log of prices and of the replete(p) expenditure on all the food items under consideration.Here i represents each food items , wi is the expenditure share of food i among the n food items and x is the come expenditure of all food items include in th e model. This model can be estimated for each food item by the ordinary. 3. Double Log Model This model assumes linear relationship between logarithms of the pendant and independent variable. The greatest benefit of this relationship is that the coefficients of the income variable directly represent the income elasticity. Its equation is lnY = A0 + A1 lnX.The elasticity is directly available as the co-efficient of the independent variable i. e. ?= A1. Understanding the Data Data Collection The info poised by The National Sample Survey (NSS), during its 63th round of data collection during July initiatory 2005 to 30th June 2006, has been used in this project. The survey contained data regarding the expenditure of a on various items such as food, clothing, medical, alcohol etcetera It also contains demographic information about each family pertaining to the religion, caste, occupation, age, sex etc. The survey is divided into two samples for data validation.We first analyzed both the samples each and then combined them to verify the validness of the results obtained. Data processing We calculated the per capita total expenditure on food for 1702 families from Rural Maharashtra. Instead of income, which wasnt available, we calculated and used the monthly per capita total expenditure for each family to find the Engel Curve. The consumption of food of a family can depend on legion(predicate) variables. The variables that we included in our analysis are the social group or caste, occupation and seasonality. The factors which were excluded are__________________________.Rural Maharashtra is fairly homogenous and hence the voice or district of the respondent wasnt considered as a variable. Function Formulation We did a multivariate regression where the monthly per capita expenditure was the independent variable (i. e. X) mend the per capita food expenditure was the dependent variable (i. e. Y). The factors of seasonality, caste and occupation were taken as du mmy variables as they have notwithstanding a qualitative and not a quantitative effect. ValuesDummy Variables SeasonalityJul-Sep, Oct-Dec, Jan-Mar, Apr-Jun CasteSC/ST, OBC, Others Occupation Self-Employed, Salary/ lucre Earning,Casual Labor, Others Monthly per capita food expenditure = f (monthly per capita total expenditure, dummy variables) This functional form was used to model the various regression models namely linear regression, double log regression and the working-lesser form. Weighted least strong method was used to factor in the weights assigned to each household. Regression analysis was carried out for using the SPSS tool which was also used for extracting data from the flat file. A scatter plot of food versus total expenditure was also plotted to prove the Engels law. Regression Analysis