The Difficulty of Measuring the Cost of Living Essay -- Economics

The Difficulty of Measuring the Cost of Living Cost of living is designed to measure the costs of maintaining living standards of working- class households. It was first introduced in 1914. It is difficult to measure the cost of living because prices are constantly changing, meaning cost of products will change too. Prices will change for instance due to increases in costs or inflation, so if a can coke was $1 in 2000, due to an increase in wage demands, costs have increased and thus the selling price of coke has increased to $2 in 2001. This happens to many commodities in the market and as a result of that it is difficult to measure the price of products as that are constantly changing over a period of time. The quality of products also changes, however this will appear on the cost of living index. For instance computers, CD players, televisions are of better quality now than they were before and that is why their prices have increased. However only the price of the product will be mentioned in the index, not the fact that its quality has been improved. Their design and performance also changes. So a price change will accompany the introduction of a new model or an improved design. Therefore it is difficult to assess the real nature of the price change. An example is the price if BMW cars has increased by 10 percent, but the quality, performance and design of the new model is much better and superior to that of the older model, has the exchange value increased or decreased? Tax also affects the cost of living because; changes in indirect taxes will affect te goods and services we purchase. Taxes will either increase or decrease due to the fluctuating inflation rate. Changes in the indirect tax... ...uct. This is known as the need for change and it's a psychological aspect more consumers go through. Also new products are invented, consumers get curious and want to try them out and this leads to changes in tastes and fashion. This causes a problem with weighting. Therefore measuring the cost of living is very difficult, because prices change, quality changes, and consumer's tastes and fashion change. Also this is the generation of technology meaning new inventions are being developed faster than any of us can imagine, meaning the cost and living index needs to be updated regularly and meaning it is not very accurate. Also there are millions of people in each country, how can you possibly know what is the average spending habit? To assume there is one, you must neglect people who don't fit that criteria meaning, the cost of living guide is inaccurate.