Explaining Income Inelastic Demand for Foodstuff

The question asks for the economic principle explaining why the demand for foodstuff is income inelastic. Income inelastic demand means that a change in consumer income leads to a proportionally smaller change in the quantity demanded. For necessities like food, as income rises, people spend a smaller proportion of their income on food.

Analysis of Economic Principles

Let's examine the options in relation to income elasticity of demand:

• Giffen's Paradox: Relates to the effect of price changes on demand, specifically when a good is inferior and the income effect outweighs the substitution effect, causing demand to rise with price. This is about price elasticity, not income elasticity.
• Engel's Law: This law states that as a household's income increases, the proportion of income spent on food decreases, even though the absolute amount spent on food may increase. This directly implies that the income elasticity of demand for food is positive but less than 1 ($0 < E_y < 1$), meaning it is income inelastic.
• Gossen's Law: Refers to the law of diminishing marginal utility, stating that the additional satisfaction from consuming more units of a good decreases. It doesn't directly explain the relationship between income changes and food demand proportions.
• Ricardo's Law: Typically refers to the Law of Diminishing Returns in production or theories concerning economic rent. It is unrelated to consumer demand elasticity concerning income.

Conclusion

Based on the analysis, Engel's Law is the economic principle that explains the income inelastic nature of demand for foodstuff.