How do the poor respond to rising prices?

Abstract

The paper discusses partial equilibrium estimates of price and expenditure elasticity of demand for different categories of household expenditure, using the Linear Expenditure System. Our analysis, using HIES 1987-88 and 1996-97, reveals that expenditure patterns are indicative of households facing tight budgetary constraints. The poorest households seem to be suffering from the impact of high food prices as seen in higher own price elasticity of demand for food and also higher expenditure on food in their budgets. Education is seen as a luxury good by a vast majority of Pakistani households. Measures to maintain stable and low food prices for the poor as well as direct transfers are recommended. There is also a need for innovative interventions to provide affordable and quality education to the poor.