Understanding the concept of Engel's law, which states that the percentage of income spent on food decreases as income increases, is crucial in economics as it impacts how individuals manage their budgets. This law highlights the challenges faced by the poor in breaking the cycle of poverty when they struggle to spend on improving their access to food and education. By analyzing the declining share of food in the consumption basket, it is possible to measure the improvement in the standard of living of a population. This insight is essential in determining poverty levels and tracking progress towards poverty alleviation initiatives.