What is the Cost of Living?
The cost of Living is the amount required to maintain or meet basic living needs. The cost of Living includes all necessities like food, clothing, utility bill payments, recreation, education, healthcare, taxes, and other essential utilities to meet expenses. It helps in determining how much people spend on their everyday Living. It also determines how much people pay for all basic needs and necessary items and amenities. It helps to evaluate the cost of living in any city for smooth Living without facing any issues. The cost of Living is flexible for most people living in the same town. This is because the standard of Living and lifestyle is different. Purchasing power parity and Cost of Living Index measure the cost of Living.
The Cost of Living Index:
Cost of living is measured by an index used to for different countries’ hypothetical living costs from time to time. The index is availed quarterly. This index helps compare the cost of living among other countries.
Purchasing Power Parity:
It is used to measure the cost of living. This variable utilizes the differences in currencies to measure living costs. According to a hypothesis, the ratio of the purchasing power of two currencies determines the exchange rate between the two. Thus, it is correct to conclude that countries using different currencies have different living costs.
What is the Standard of Living?
The standard of living is the living style of people to maintain their status or desired level. The standard of living depends upon the locality or the class in which a person lives. The standard of living is a significant factor in determining the country’s overall economic conditions. It is based on many factors like income, poverty rate, employment opportunities, quality of education, rate of inflation of the region, health care, social and religious freedom, economic and political stability of a country, etc. The standard of living is variable and changes over time. It cannot be measured on a singular indicator. The most vital indicator for the standard of living is a person’s real income and poverty rate.
For standard living, two variables matter the most, like income and rate of poverty. Their higher income higher will be purchasing power. The rate of poverty reduction increases the quality of life and living standards. Some countries have the highest living standards, like Finland, Canada, Australia, Norway, Denmark, etc.
Difference Between the Cost and Standard of Living
The cost of living and standard of living are essential factors in social sciences to evaluate the needs and demands of society and the economic condition indicators of a country.
- Cost of living is the cost an individual pay for buying necessities for everyday living for the livelihood or survival of his family. in contrast to this, the standard of living is the lifestyle of a person according to his will and wish to maintain a status in reasonable expenditures according to their society in which they live.
- The cost of living determines the amount one spends for survival to meet the necessities of life in a specific city. In this region, they live as compared to other cities. On the other hand, the standard of living helps measure the population‘s financial health regardless of the needs and wants of people in the country or any city.
Comparison Between the Cost and Standard of Living
| Parameters | Cost of Living | Standard of Living |
| Definition | The cost of Living is the amount required to maintain or meet basic living needs. | The standard of living is the living style of people to maintain their status or desired level. |
| Measurement | Cost of living measures the essential expenses to survive in a specific area or city. | Standard of living is the living style of people without comparing their needs and demands. |
| Factors | It depends on a person’s income and employment. | It cannot be measured by singular factors. However, income and poverty plays important role in the standard of living. |
| Indicators | Cost of living indicates the purchasing power of individuals in society. | Standard of living indicates the employment opportunities, poverty rate, and costs of goods and services. |
References
- Boskin, M.J., Dulberger, E.L., Gordon, R.J., Griliches, Z. and Jorgenson, D.W., 1998. Consumer prices, the consumer price index, and the cost of living. Journal of economic perspectives, 12(1), pp.3-26.
- Sen, A., 1988. The standard of living. Cambridge University Press.