Last Updated 02 Aug 2020

The standard of living is the measure of the material well being of the given population

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The standard of living is the measure of the material well being of the given population. This would include things such as your properties, motors, incomes etc.... it covers anything that can be given a monetary values and excludes those that cannot e.g. happiness or luck. The standard of living is measured mainly by the GDP per capita and focuses on incomes this provides a general guide to the well -being - materialistically of the population in question. If the GDP were increasing this would suggest that the population is better off, there is more wealth within the economy, one may assume there is fuller employment and people are spending more as more is produced. If people are thought to be better off one assume this to signify that people are happier but this is not necessarily true but as this cannot be measured it has to be sidelined.

Health is another important factor which is difficult to identify within monetary terms however there are different statistics which can be produced e.g. number of doctors per hospital etc... when the standard f living is measure if comparing over time it will be adjusted for inflation and dealt with in real terms. There is the issue of the PPP adjustment, which must be taken to account when comparing internationally as goods and service cost more and less in other nations depending on their own resources, labour markets, and performance. In Helsinki the spending on heating is likely to be much higher than in Andalusia but this does not indicate a difference in the standard of living it is simply misguiding. National GDP figures hide significant regional variations in output, employment and incomes per head of population.

Within each region there are also areas of relative prosperity contrasting with unemployment black-spots and deep-rooted social and economic deprivation. We need to analyse the balance between consumption and investment. If an economy devotes too many resources to satisfying the short run needs & wants of consumers, there may be insufficient resources for investment needed for long-term economic development. Faster economic growth might improve living standards today but lead to an over-exploitation of scarce finite economic resources thereby limiting future growth prospects.

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The principal problems with the GDP method are that it ignored the values of goods and services which are traded but left undeclared e.g. diy jobs and the black economy in some countries e.g. Italy the black economy is estimated to be near 35% and poses a great difficulty to governments trying to estimate the net income flow. It also fails to take into account the distribution of wealth e/g/ in Saudi Arabia the GDP is not particularly low but it is all concentrated among the hands of the wealthy sheiks and in parts there is extreme poverty because there is no 'trickle effect' of the capital throughout the society as it is maintained. Furthermore it doesn't always take into account the improvements in technology for example 15 years ago a PC for $1000 will now be 10 times worse than one valued at $500 this is not because if increased living standard but change sin technology. Economic 'bads' can increase the figure of the standard of living, even though the 'quality of life' has decreased.

For example traffic jams cause more petrol to be consumed but increase the income and output of a county. Also the environment can be damaged in this case, but one person may hold a higher value for the environment than another. These valuation problems apply to health and defense the output of these does not have a market price but the value is determined by the cost of producing them. The quality of life can also be over o under valued because say we take longer holidays output and income may fall but happiness will increase, similarly a crackdown on pollution by rise the prices of supply and therefore consumption but make our lives intrinsically more happy.

Another method of measuring the living standard of an economy could be to examine the consumer durables. Thee can be anything from cars to washing machines to nice houses to computers. It is theorized that the more of these items you own the higher your standard of living would be. E.g. a man with 2 Bentleys and a Rolls Royce compared to a man with two skodas and a ford fiesta will be assumed to have higher standard of living. However sometimes it is difficult to compare some durables for instance TV's just because one is valued at more does it necessarily imply a better quality therefore even those who can afford it may not opt for the most costly.

Also if I have seven flats in Norwich or one house in Kensington, which would make me, better off? Consumer durables also exclude savings and services, some people choose to accumulate their wealth as opposed to purchase consumer durables therefore it is not at all a clear indicator of the real standard of living. Compared to the GDP method it is extremely vague and inaccurate, the previous method is much more thorough and examines wealth in terms of cash and not goods for this latter method one needs to heavily account for consumer spending trends which can be extremely unpredictable.

The third and final method is a non-monetary system of using the human development index. A measure of economic development The Human Development Report has been published by the United Nations each year since 1990. The report contains detailed statistical information on economic and social development indicators for virtually every country in the world. Among the hundreds of tables and charts we find the annual data on the Human Development Index and the Human Poverty Index. Both are simple measures of the extent to which living standards vary across countries. The HDI is constructed as an aggregate index of three components: education, income, and life expectancy at birth.

The focus of the HDI is on the escape from poverty - defined as an HDI below 0.5. Here is a list of some of the social aspects that need to be considered

o The number of patients per doctor - a measure of health provision in a country

o Hospital waiting lists for important operations

o The number of children per thousand of the population who die each year (infant mortality rates)

o The average food intake per person (measured by average calorific intake)

o The proportion of the population that can read or write - literacy rates

o Average educational attainment at different age levels

o Crime rates

o Divorce rates

These statistics should indicate what proportion of the population is enjoying a minimum standard of living although perceptions of what is needed for a basic quality of life vary. The figures could be misleading as in developing nations increases would imply better standards of living and more westernized countries would appear to be worse than they are.

In conclusion I think the HDI is the best method to provide an overall picture of the economy and covers very many social aspects which are key to determining somebody's quality of life. The GDP method is the most reliable statistically and most through but the problems outlined are particularly heard to overcome in particular that of the black economy. The consumer durable methods is extremely inefficient ad indicates of nothing expect consumer spending patterns.

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