The Difficulty of Measuring the Cost of Living

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...

... middle of paper ...

...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.