An analysis of Household Rice Expenditure Patterns in Urban, Rural and Estate Sectors in Sri Lanka: Using MPE Approach

Abstract

Introduction :

Analysis of household food expenditure patterns is considered an important indicator of economic development in a country, especially meaningful in developing countries where the food expenditure account is a relatively large share of household income (Dunne & Edkins, 2005). Marginal Propensity to Expend (MPE) is a tool to analyse household food expenditure pattern. It measures the proportion of any increment of income that the household desires to spend on consumption. MPE indicates the type of relationship between income and expenditure on a particular food item and provides support for Engel’s curve (Haavelmo, 1947).

MPE of a food expenditure function shows how households react differently when income changes. This is defined as the ratio of the change in expenditure on a food item to change in household total income. It is simply the slope of the response curve and the marginal response of consumption to changes in income. MPE of food items can be used to compare consumer behavior between sectors and is relevant to judge the pattern of additional demand (Langemeier & Patrick, 1990).