Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.9, No.10, 2018 124 Analysis of Household Expenditure in Rural Areas of Ondo State, Nigeria: Using Quadratic Almost Ideal Demand System ASAGUNLA, Temitope Michael AGBEDE Moses Oyeyemi Department of Economics, Adekunle Ajasin University Akungba, P.M.B. 001 AkungbaAkoko, Ondo State, Nigeria Abstract Poverty level in Ondo State is extremely high particularly in rural areas, this is due to low per capita income coupled with various factors and the consumer price index increasing on a daily basis such a way that household income can hardly cope with the trend. Consequently, there are several empirical studies on household expenditure but most of those studies focused on only foodstuffs, however, this study focused on food and non- foodstuffs. This study investigated households’ expenditure in rural areas of Ondo State and the specific objectives were: (i) examined the effects of income on household expenditure in rural areas of Ondo State and (ii) identified the determinants of household expenditure in rural areas of Ondo State. Data collected from five hundred and nineteen (519) households’ heads selected for the study through multi-stage sampling method were analyzed using the QUAIDS. The study found that all expenditure elasticities were positive, indicating that food and non-food items are normal goods. It was also discovered that Beans (0.22) and Gari (0.82) are necessities with their elasticities less than 1 while others are luxury goods since their elasticities are greater than 1. Own price elasticities were mostly negative as expected in both uncompensated and compensated price elasticity estimates for food items. The Hicksian cross-price elasticities showed that gari and meat were substitutes. The study concluded that income and price influence household purchasing power in rural areas. And thus recommended that economic policies should be geared towards preventing fluctuations majorly in the price of food and non-food items. Keywords: Luxury, QUAIDS, Elasticity, Expenditure, Food Demand and Household Introduction Household expenditure is the most important part of aggregate demand and forms one of the major components of Gross Domestic Product (GDP). Household expenditure refers to the monetary value of basic needs or goods and services purchased by household on daily, weekly, monthly and yearly basis. It can be broken down into a number of categories, covering major items like food, electricity, holidays, clothing, spending on transport, internet, health, recreation and culture, and housing, fuel and energy and so on. An analysis of household expenditure pattern has become topical due to the impact of household decisions on economic development and policy planning purposes. Household budget surveys across Africa consistently show basic food to be the main consumption expenditure item in rural areas, but as relevant as food is, however, non- food is alsopertinent to human life and its role in reducing poverty cannot be overemphasized. The study by Gale(2005), found food to be the largest single expenditure item for rural Chinese people, but according to National Sample Survey Office (NSSO, 2012), larger households were found in the recent time to spend more on non-food items in view to reduce poverty. According to the report of the National Sample Survey Office (NSSO, 2012) in India, the recent trends in consumption expenditure show a considerable shift from food to non-food items. It is estimated that the share of non-food items in consumer expenditure in the studied rural areas is 71.34 percent, which is higher than the share of urban Kerala. The share of non-food expenditure in total consumption expenditure in India is 54 percent in 2009-2010. Its report also shows that, between 2000-2010, the share of food in total consumption expenditure has fallen from 68.96 percent to 46 percent. According to Europe Consumption Report (2012), the more developed a society becomes, the less it spends on food and the more it spends on non-food items. Statement of the Problem The level of poverty in Ondo State is very high due to low per capita income coupled with various factors and the consumer price index increasing on a daily basis such a way that households’ income can hardly cope with the trend. This has contributed immensely to the poor purchasing power of the household and negatively affected the expenditure pattern of the people. However, the decision to reverse the ugly trend and reduce poverty has become a major concern. Application of demand system enables the modeling of allocation of total expenditure among commodities given a certain budget set, Pangaribowo and Tsegal, (2011). In order to apply demand theory in the real world, empirical model of demand system is needed. A number of approaches (locally or internationally) have been used to quantify the role of household composition in determining household expenditure using any of Linear