This is an initial report on the research topic Whether Food Price is a measure of utility.

The
report focuses on the initial methodology, assumption that was made and outcome that was
observed due to the adoption of that methodology and necessary assumptions.
Through this research we are trying to find out whether food price can be used to measure
utility as there is no fundamental unit or methods of measuring utility and food is one of the
necessary items in our daily life. A cobb Douglas equation was used to make the necessary
theoretical base of the research

U=X1 X2

Subject to Y=P1X1 + P2X2

P1 = Price of food Items

P2= Price of Non Food Items
X1 = Quantity of food items
X2 = Quantity of Non Food Items

By using partial derivation we found

After completing the necessary theoretical basis, the raw data of HIES2010 was carefully
studied, the was carried out throughout the country and was divided into 6 division Dhaka ,
Chittagong , Khulna , Barisal , Rajshahi and Sylhet. Among the 6 Divisions the number of
observation was highest in Dhaka , Chittagong and Rajshahi. Each division had its own unique
division number and each division was further divided using PSU number. Barisal(10) PSU 1-49,
Chittagong(20) PSU 50-159, Dhaka(30) PSU 160-337, Khulna(40) PSU 337-426 , Rajshahi(50) PSU
427-569 and Sylhet(60) PSU 570-612. The strata no. number indicates whether the PSU number
is under Urban or rural area.
After recording the required data, a key assumption was made i.e Income is directly
proportional to utility. So a rise(fall) in income would lead to an increase(decrease) in utility.
The HIES survey 2010 had a given food basket and expenditure and a non-food basket and
expenditure and also the income source of the household surveyed.
A unit root test of each variable INCOME, FOOD and NON-FOOD was carried out to test for
multicollinearity and the test showed that the variables had no multicollinearity problem.
A correlation test was carried out to test whether there is any correlation between the
variables. The test results showed that all the variable are positively correlated.

Then a regression equation was calculated with INCOME as dependent variable and Food
expenditure and Non-food expenditure as Independent variable.
A conintegration test was lastly carried out which gave a 3 equations instead of 2 equations.
Again this same tests was carried out by taking the log of each variables.
The results of each test is given below:

UNITROOT TEST
Null Hypothesis: FOOD has a unit root
Exogenous: Constant
Lag Length: 3 (Automatic - based on SIC, maxlag=42)

Augmented Dickey-Fuller test statistic

Test critical values:
1% level
5% level
10% level

t-Statistic

Prob.*

-61.04692
-3.430582
-2.861527
-2.566804

0.0001

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(FOOD)
Method: Least Squares
Date: 02/23/14 Time: 11:01
Sample (adjusted): 5 16162
Included observations: 16158 after adjustments
Variable

Coefficient

Std. Error

t-Statistic

Prob.

FOOD(-1)
D(FOOD(-1))
D(FOOD(-2))
D(FOOD(-3))
C

-0.688909
0.163815
-0.014038
0.037499
10734.24

0.011285
0.010352
0.008825
0.007819
287.3622

-61.04692
15.82446
-1.590613
4.795922
37.35438

0.0000
0.0000
0.1117
0.0000
0.0000

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.316111
0.315942
28873.81
1.35E+13
-188878.5
1866.585
0.000000

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

Null Hypothesis: INCOME has a unit root

Exogenous: Constant
Lag Length: 17 (Automatic - based on SIC, maxlag=42)

0.451789
34910.63
23.37957
23.38195
23.38035
1.999592

Augmented Dickey-Fuller test statistic

Test critical values:
1% level
5% level
10% level

t-Statistic

Prob.*

-19.44591
-3.430583
-2.861527
-2.566804

0.0000

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(INCOME)
Method: Least Squares
Date: 02/23/14 Time: 11:02
Sample (adjusted): 19 16162
Included observations: 16144 after adjustments
Variable

Coefficient

Std. Error

t-Statistic

Prob.

INCOME(-1)
D(INCOME(-1))
D(INCOME(-2))
D(INCOME(-3))
D(INCOME(-4))
D(INCOME(-5))
D(INCOME(-6))
D(INCOME(-7))
D(INCOME(-8))
D(INCOME(-9))
D(INCOME(-10))
D(INCOME(-11))
D(INCOME(-12))
D(INCOME(-13))
D(INCOME(-14))
D(INCOME(-15))
D(INCOME(-16))
D(INCOME(-17))
C

-0.334209
-0.508548
-0.403562
-0.340326
-0.336733
-0.299825
-0.269954
-0.214326
-0.192210
-0.169593
-0.140768
-0.104302
-0.113110
-0.111381
-0.071745
-0.065730
-0.062177
-0.031367
1366.776

0.017187
0.017736
0.017912
0.017916
0.017832
0.017684
0.017491
0.017279
0.016955
0.016554
0.016083
0.015532
0.014809
0.013970
0.012957
0.011829
0.010306
0.007888
104.8387

-19.44591
-28.67386
-22.53069
-18.99552
-18.88327
-16.95455
-15.43368
-12.40365
-11.33660
-10.24468
-8.752552
-6.715164
-7.638137
-7.972986
-5.537079
-5.556867
-6.032815
-3.976421
13.03694

0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0001
0.0000

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.418383
0.417734
9903.141
1.58E+12
-171432.4
644.4129
0.000000

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

4.645689
12978.13
21.24027
21.24932
21.24326
1.997663

Null Hypothesis: NON_FOOD has a unit root

Exogenous: Constant
Lag Length: 8 (Automatic - based on SIC, maxlag=42)

Augmented Dickey-Fuller test statistic

Test critical values:
1% level

t-Statistic

Prob.*

-36.70546
-3.430582

0.0000

5% level
10% level

-2.861527
-2.566804

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(NON_FOOD)
Method: Least Squares
Date: 02/23/14 Time: 11:03
Sample (adjusted): 10 16162
Included observations: 16153 after adjustments
Variable

Coefficient

Std. Error

t-Statistic

Prob.

NON_FOOD(-1)
D(NON_FOOD(-1))
D(NON_FOOD(-2))
D(NON_FOOD(-3))
D(NON_FOOD(-4))
D(NON_FOOD(-5))
D(NON_FOOD(-6))
D(NON_FOOD(-7))
D(NON_FOOD(-8))
C

-0.603340
-0.153897
-0.162375
-0.222662
0.095206
-0.030074
-0.003833
0.032366
-0.057521
1633.743

0.016437
0.015902
0.015302
0.014593
0.013826
0.013256
0.011555
0.009859
0.007857
107.1739

-36.70546
-9.677728
-10.61144
-15.25851
6.885929
-2.268707
-0.331702
3.282978
-7.320526
15.24385

0.0000
0.0000
0.0000
0.0000
0.0000
0.0233
0.7401
0.0010
0.0000
0.0000

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.448519
0.448211
12389.96
2.48E+12
-175151.4
1458.786
0.000000

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

-0.043336
16679.52
21.68778
21.69254
21.68935
1.999220

Correlation test

FOOD
INCOME
NON_FOOD

FOOD

INCOME

NON_FOOD

1.000000
0.004217
0.017586

0.004217
1.000000
-0.001583

0.017586
-0.001583
1.000000

Regression
Dependent Variable: INCOME
Method: Least Squares
Date: 02/23/14 Time: 10:06
Sample: 1 16162
Included observations: 16162
Variable

Coefficient

Std. Error

t-Statistic

Prob.

FOOD
NON_FOOD

0.001379
-0.001307

0.002556
0.006201

0.539689
-0.210704

0.5894
0.8331

4066.375

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.000021
-0.000103
10471.62
1.77E+12
-172533.7
0.165881
0.847148

92.93604

43.75455

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

0.0000
4084.382
10471.08
21.35091
21.35234
21.35138
1.534798

Cointegration Test
Date: 02/23/14 Time: 11:00
Sample (adjusted): 6 16162
Included observations: 16157 after adjustments
Trend assumption: Linear deterministic trend
Series: INCOME FOOD NON_FOOD
Lags interval (in first differences): 1 to 4
Unrestricted Cointegration Rank Test (Trace)
Hypothesized
No. of CE(s)

Eigenvalue

Trace
Statistic

0.1
Critical Value

Prob.**

None *
At most 1 *
At most 2 *

0.157134
0.119305
0.097926

6479.781
3717.779
1665.121

27.06695
13.42878
2.705545

1.0000
1.0000
0.0000

Trace test indicates 3 cointegrating eqn(s) at the 0.1 level

* denotes rejection of the hypothesis at the 0.1 level
**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized
No. of CE(s)

Eigenvalue

Max-Eigen
Statistic

0.1
Critical Value

Prob.**

None *
At most 1 *
At most 2 *

0.157134
0.119305
0.097926

2762.003
2052.658
1665.121

18.89282
12.29652
2.705545

1.0000
1.0000
0.0000

Max-eigenvalue test indicates 3 cointegrating eqn(s) at the 0.1 level

* denotes rejection of the hypothesis at the 0.1 level
**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegrating Coefficients (normalized by b'*S11*b=I):
INCOME
1.79E-06
3.54E-05
0.000157

FOOD
-5.49E-05
-5.32E-06
1.52E-06

NON_FOOD
1.69E-05
-0.000133
2.60E-05

Unrestricted Adjustment Coefficients (alpha):

D(INCOME)
D(FOOD)
D(NON_FOOD)

8.177548
12368.97
-560.4604

1 Cointegrating Equation(s):

-902.5171
1250.090
4423.560

-3191.296
-327.3745
-972.5916

Log likelihood

-537712.7

Normalized cointegrating coefficients (standard error in parentheses)

INCOME
FOOD
NON_FOOD
1.000000
-30.65650
9.469880
(0.56165)
(1.39059)
Adjustment coefficients (standard error in parentheses)
D(INCOME)
1.46E-05
(0.00015)
D(FOOD)
0.022132
(0.00041)
D(NON_FOOD)
-0.001003
(0.00019)

2 Cointegrating Equation(s):

Log likelihood

-536686.4

Normalized cointegrating coefficients (standard error in parentheses)

INCOME
FOOD
NON_FOOD
1.000000
0.000000
-3.817954
(0.08304)
0.000000
1.000000
-0.433443
(0.04565)
Adjustment coefficients (standard error in parentheses)
D(INCOME)
-0.031967
0.004354
(0.00293)
(0.00455)
D(FOOD)
0.066430
-0.685145
(0.00806)
(0.01252)
D(NON_FOOD)
0.155750
0.007204
(0.00349)
(0.00541)

Correlation Test using logarithm

IN
INFOOD
INNONOFOOD

IN

INFOOD

INNONOFOOD

1.000000
-0.008072
0.034440

-0.008072
1.000000
0.019010

0.034440
0.019010
1.000000

Regression using logarithm

Dependent Variable: IN
Method: Least Squares
Date: 02/23/14 Time: 10:12

Sample (adjusted): 3 16162

Included observations: 8726 after adjustments
Variable

Coefficient

Std. Error

t-Statistic

Prob.

INFOOD
INNONOFOOD
C

-0.006061
0.024574
8.238533

0.007431
0.007600
0.083323

-0.815669
3.233568
98.87434

0.4147
0.0012
0.0000

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.001262
0.001033
0.954955
7954.841
-11977.96
5.512493
0.004050

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

8.355882
0.955449
2.746038
2.748470
2.746867
1.151294

Cointegration using logarithm

Date: 02/23/14 Time: 10:58
Sample (adjusted): 14 16149
Included observations: 1299 after adjustments
Trend assumption: Linear deterministic trend
Series: IN INFOOD INNONFOOD
Lags interval (in first differences): 1 to 4
Unrestricted Cointegration Rank Test (Trace)
Hypothesized
No. of CE(s)

Eigenvalue

Trace
Statistic

0.05
Critical Value

Prob.**

None *
At most 1 *
At most 2 *

0.152904
0.095018
0.055381

419.2587
203.7013
74.00896

29.79707
15.49471
3.841466

0.0001
0.0001
0.0000

Trace test indicates 3 cointegrating eqn(s) at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized
No. of CE(s)

Eigenvalue

Max-Eigen
Statistic

0.05
Critical Value

Prob.**

None *
At most 1 *
At most 2 *

0.152904
0.095018
0.055381

215.5574
129.6924
74.00896

21.13162
14.26460
3.841466

0.0001
0.0001
0.0000

Max-eigenvalue test indicates 3 cointegrating eqn(s) at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegrating Coefficients (normalized by b'*S11*b=I):

IN
0.120326
-1.287658
0.264012

INFOOD
1.237298
0.108861
0.057504

INNONFOOD
-0.240386
0.266910
1.080025

Unrestricted Adjustment Coefficients (alpha):

D(IN)
D(INFOOD)
D(INNONFOOD)

-0.069647
-0.520300
0.006059

1 Cointegrating Equation(s):

0.283567
-0.072247
-0.046860

-0.029883
-0.008188
-0.283325

Log likelihood

-5990.809

Normalized cointegrating coefficients (standard error in parentheses)

IN
INFOOD
INNONFOOD
1.000000
10.28291
-1.997797
(0.67845)
(0.62005)
Adjustment coefficients (standard error in parentheses)
D(IN)
-0.008380
(0.00317)
D(INFOOD)
-0.062605
(0.00419)
D(INNONFOOD)
0.000729
(0.00407)

2 Cointegrating Equation(s):

Log likelihood

-5925.963

Normalized cointegrating coefficients (standard error in parentheses)

IN
INFOOD
INNONFOOD
1.000000
0.000000
-0.221884
(0.07472)
0.000000
1.000000
-0.172705
(0.05962)
Adjustment coefficients (standard error in parentheses)
D(IN)
-0.373517
-0.055304
(0.03245)
(0.03116)
D(INFOOD)
0.030424
-0.651631
(0.04493)
(0.04315)
D(INNONFOOD)
0.061069
0.002395
(0.04375)
(0.04202)