118 PART • Producers, Consumers, and Competitive Markets applies to the purchase of homes: There is a more than a sixfold increase in expenditures from the lowest to the highest category In contrast, expenditures on rental housing actually fall as income rises This pattern reflects the fact that most higher-income individuals own rather than rent homes Thus rental housing is an inferior good, at least for incomes above $30,000 per year Finally, note that health care, food, and clothing are consumption items for which the income elasticities are positive, but not as high as for entertainment or owner-occupied housing The data in Table 4.1 for rented dwellings, health care, and entertainment have been plotted in Figure 4.5 Observe in the three Engel curves that as income rises, expenditures on entertainment and health care increase rapidly, while expenditures on rental housing increase when income is low, but decrease once income exceeds $30,000 $80,000 $70,000 F IGURE 4.5 Annual Income $60,000 ENGEL CURVES FOR U.S CONSUMERS $50,000 Average per-household expenditures on rented dwellings, health care, and entertainment are plotted as functions of annual income Health care and entertainment are normal goods, as expenditures increase with income Rental housing, however, is an inferior good for incomes above $30,000 $40,000 $30,000 $20,000 $10,000 $0 $500 $1000 $1500 $2000 $2500 $3000 $3500 $4000 $4500 $5000 Annual Expenditure Entertainment Rented Dwelling Health Care Substitutes and Complements The demand curves that we graphed in Chapter showed the relationship between the price of a good and the quantity demanded, with preferences, income, and the prices of all other goods held constant For many goods, demand is related to the consumption and prices of other goods Baseball bats and baseballs, hot dogs and mustard, and computer hardware and software are all examples of goods that tend to be used together Other goods, such as cola and diet cola, owner-occupied houses and rental apartments, movie tickets and videocassette rentals, tend to substitute for one another Recall from Section 2.1 (page 22) that two goods are substitutes if an increase in the price of one leads to an increase in the quantity demanded of the other