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

The Difficulty of Measuring the Cost of LivingCost of nutriment is designed to measure the costs of maintaining life-timestandards of working- class households. It was number 1 introduced in1914.It is trying to measure the cost of living because prices areconstantly changing, meaning cost of point of intersections will change too. Priceswill change for instance payable to increases in costs or inflation, so ifa butt joint coke was $1 in 2000, due to an increase in wage demands, costs discombobulate change magnitude and thus the selling price of coke has increased to $2in 2001. This happens to many commodities in the market and as aresult of that it is difficult to measure the price of products asthat are constantly changing over a period of time.The quality of products also changes, however this will appear on thecost of living index. For instance computers, CD players, televisionsare of better quality now than they were before and that is why theirprices have increased. Howe ver only the price of the product will bementioned in the index, not the fact that its quality has beenimproved. Their design and performance also changes. So a price changewill imitate the introduction of a new model or an improved design.Therefore it is difficult to assess the real nature of the pricechange. An example is the price if BMW cars has increased by 10percent, but the quality, performance and design of the new model ismuch better and superior to that of the older model, has the exchangevalue increased or decreased?Tax also affects the cost of living because changes in indirect taxeswill affect te goods and services we purchase. Taxes will eitherincrease or decrease due to the fluctuating inflation rate. Changes inthe indirect tax... ...uct. This is known as the need forchange and its a psychological aspect more consumers go through. Alsonew products are invented, consumers get curious and want to try themout and this leads to changes in tastes and fashion. This causes aproblem with weighting.Therefore measuring the cost of living is very difficult, becauseprices change, quality changes, and consumers tastes and fashionchange. Also this is the generation of technology meaning newinventions are being developed faster than any of us can imagine,meaning the cost and living index needs to be updated regularly andmeaning it is not very accurate. Also there are millions of people ineach country, how can you possibly know what is the average spendinghabit? To assume there is one, you must neglect people who dont fitthat criteria meaning, the cost of living guide is inaccurate.