<p>We investigate how fluctuations in staple prices affect expenditure on food groups, food security, and dietary diversity in both rural and urban areas. We utilize three waves of the World Bank’s Living Standards Measurement Survey (LSMS) data as well as data from other national sources in Ethiopia. Our findings show that an increase in per-unit consumer prices of teff, sorghum, and maize increases the expenditure share of cereals in urban-, but not in rural-, households. However, we find opposite effects for dietary diversity between the two types of households. Dietary diversity, as measured by a household dietary diversity score, decreases for rural households when per-unit consumer prices of maize, sorghum, wheat, and barley increase. However, dietary diversity decreases when maize and teff prices increase, but price changes in other staples show no statistically significant association with dietary diversity, for urban households. Our findings emphasize the importance of both rural and urban consumers’ welfare as well as their dietary diversity towards either food security or improved diets in developing countries.</p>