Study On The Failure Of The Engel Coefficient

Consumption is one of the important contents of residents' living standard and quality, one of the important indicators on which China depends declaring to achieve well off generally is Engel Coefficient. The 16th National Congress of Communist Party of China (CPC) clearly put forward the objective of building a well-off society in an all round way in China. If the Engel Coefficient is the major indicator of measuring the well off in a whole, then we need to add and implement some new indicators to fully descriptive the resident's living standard and quality.Based on the history of the Engel Coefficient and the Engel's law, the thesis analyses the Engel Coefficient and the Engel's law, it points out that under the current environment of economy and the society, there exists some flaws in the application of the Engel Coefficient and the Engel's law. After that it says that because of the reason, the Engel Coefficient and the Enge1's law is only the measurement of the income level and the consumption ability of the residents. We need some other indicators to measure the living level and quality of the residents.Then based on the consumption theory and the need of people, the thesis think that when the society is in a low stage, the Engel Coefficient and the Engel's is useful to measure the living level. But with the development of the economy, there are some problems for the application of the Engel Coefficient. To measure the living level under such environment, based on the structure of consumption, the thesis draws some useful factors with economic meaning by factor analysis to measure the living standard of residents. With China's urban residents as an example, it makes some practical analysis of the degree of the living standard of the urban residents. It is proved that comparing to the Engel Coefficient, the new Engel Coefficient can do good work of measuring the living level and quality of the residents.According to the demonstration analysis on the Engel coefficient, the paper using econometrics analyses the linear regression of the Engel coefficient and Gini coefficient .The demonstration analysis indicate the relationship of Engel coefficientˊs malfunction and the expansion of the gap of the rich and the poor.