The objective of the study was to examine the welfare effects of price changes on food items in
Pakistan between two survey data of 2001-02 and 2005-06 which were taken from Household
Integrated Economic Survey of Pakistan. The rationale of the study is related with the outsized
budget shares of food items including in the consumer basket. Food expenditures are mainly
inelastic in nature; however, the expenditures on non-food commodities can be overdue. The
present study focuses on the magnitude of the cost involved in increasing the welfare among
various income groups, using equivalent income and equivalent variation method. Moreover,
the study analyzes the welfare effects for rural-urban segments of Pakistan. As there are
considerable differences in the composition of the consumption basket between rich and poor,
therefore, the survey data of both years is disaggregated into four sub-samples according to
the expenditure levels of rural-urban segments based on head count index. The results indicate
the degree of vulnerability increases among the poorest households when staple food price
increases. While in case of meat, this percentage change is low for poorest. It is evident that
cereals, pulses and dairy products are the major source of welfare in urban, rural and overall
Pakistan.