Question
What is the effect of a price change on households before they have a chance to respond to the new prices?
Short-run Net Benefit Ratio Analysis
Uses household survey data to estimate the short-run impact of a price change on the welfare of different types of households.
Data Requirements
- Nationally representative household survey data that includes the value of purchases and sales of the commodity and total income or consumption expenditure.
- Estimate of percentage change in commodity price
| Variables | |
|---|---|
| i | commodity |
| Δ y/y | proportional change in household welfare (usually expressed in terms of the value of household consumption) |
| fi | share of income from the sale of i |
| si | share of expenditure going to the purchase of i |
| Δ pi / pi | proportion change in the price of i |
| ( fi – si ) | net benefit ratio, the ratio of net sales of i divided by household income or expenditure |
Output
Estimates of the short-term percentage change in welfare for different types of households as a result of the price change. Can be considered the short-term elasticity of welfare with respect to price of a commodity.