<p>In general the demand for a certain good (say from a consumer) can be written as a function of the prices of all available goods and the total amount of money that the consumer has available.</p>
<p>Take the setting of two goods, <span class="math-container">$q_1$</span> and <span class="math-container">$q_2$</span> with prices <span class="math-container">$p_1$</span> and <span class="math-container">$p_2$</span> and total income <span class="math-container">$y$</span>. Then the demands can be written as:
<span class="math-container">$$
q_1 = d_1(p_1, p_2, y)\\
q_2 = d_2(p_1, p_2, y).
$$</span></p>
<p>If you look at Engel curves, you consider prices as fixed, so the only thing that is allowed to vary are the income levels. In this case, you can simply write:
<span class="math-container">$$
q_1 = e_1(y),\\
q_2 = e_2(y).
$$</span></p>
<p>If you want to estimate the full demand system (i.e. the functions <span class="math-container">$d_1, d_2$</span>), you have to make sure that you have variation both in income levels (<span class="math-container">$y$</span>) and (relative) prices (<span class="math-container">$p_1$</span> and <span class="math-container">$p_2$</span>), so either time series data for a given individual or panel data for a group of individuals.</p>
<p>If you do not have price variation (e.g. because you are using a cross sectional dataset and everyone faces the same price, or if prices do not change over time) then you can only estimate the Engel curves <span class="math-container">$e_1$</span> and <span class="math-container">$e_2$</span>.</p>

CC BY-SA 4.0
2021-04-30T08:39:31.590Z
2021-04-30T08:39:31.590Z
tdm
<p>What is the difference between <em>Engel Curve</em> and the <em>system approach</em> of demand analysis?</p>

<microeconomics><mathematical-economics><consumer-theory><demand><demand-system-estimation>
Approaches in demand analysis
desi arthshastri
# Approaches in demand analysis

(Asked by: username_0 on 2021-04-30)

What is the difference between *Engel Curve* and the *system approach* of demand analysis?

**Tags:** microeconomics, mathematical-economics, consumer-theory, demand, demand-system-estimation


---

## 1 answers

### Answer by username_1 on 2021-04-30. Score: 4 | Accepted answer

In general the demand for a certain good (say from a consumer) can be written as a function of the prices of all available goods and the total amount of money that the consumer has available.

Take the setting of two goods, $q\_1$ and $q\_2$ with prices $p\_1$ and $p\_2$ and total income $y$. Then the demands can be written as:
$$
q\_1 = d\_1(p\_1, p\_2, y)\\
q\_2 = d\_2(p\_1, p\_2, y).
$$

If you look at Engel curves, you consider prices as fixed, so the only thing that is allowed to vary are the income levels. In this case, you can simply write:
$$
q\_1 = e\_1(y),\\
q\_2 = e\_2(y).
$$

If you want to estimate the full demand system (i.e. the functions $d\_1, d\_2$), you have to make sure that you have variation both in income levels ($y$) and (relative) prices ($p\_1$ and $p\_2$), so either time series data for a given individual or panel data for a group of individuals.

If you do not have price variation (e.g. because you are using a cross sectional dataset and everyone faces the same price, or if prices do not change over time) then you can only estimate the Engel curves $e\_1$ and $e\_2$.


---

