Standard of living

Question 1

What are the types of standards of living?

Answer 1

• material standard of living
• non-material standard of living

Question 2

What are the definitions of the standards of living mentioned?

Answer 2

1. material SOL: stem from consumption of consumer goods and services
2. non-material SOL: refers to aspects of well-being that stems from intangibles

Question 3

Explain the concept of national income

Answer 3

National income is the total income earned by a nation from producing the countr’y s total final output over a given period of time

National income = national output = national expenditure

Question 4

What are some measures of national income?

2 definitions

Answer 4

1. Gross Domestic product (GDP): refers to the value of all final goods and services produced by factors of production located within a country’s geographical boundaries, during a given period of time
2. Gross National Income (GNI): refers to the value of all final goods and services produced during a given period of time by factors of production owned by residents of the country, regardless of whether these factors of production are located within the geographical boundary of the country of abroad

Question 5

What are some measures of the standards of living?

Answer 5

• real GDP per capita
• gini coefficient
• HDI (human development index)

Question 6

Why use real GDP per capita as a measure of material SOL?

define real and per capita

Answer 6

real: to account for changes in the general price level (i.e. takes into account inflation)

per capita: To account for changes in popuation size

Question 7

What are some limitations of using real GDP per capita as a measure of material SOL?

split into measurement problems (3) and interpretation problems (3)

Answer 7

Measurement problems:
1. data collection: mistakes arise due to omission,double counting or inflation of figures
2. size of underground economy: includes illegal production (black market) and legal activities that are not declared in income tax returns (tutoring)
3. changes in sizeof non-market economy: home- based activities, subsistence agriculture

Interpretation problems:
1. changes in distribution of national income: an increase in real GDP per capita may not reflect an increase in income of all residents equally (use Gini coeff as a supplementary indicator)
2. changes in composition of national income: if national income rises as a resulty of the prduction of capital goods,then current SOL will nto rise
3. ignores non-material aspect of SOL: negative externalities such as pollution, crime rate, stress

these limitations are common (applicable when comparing with countries)

For comparing between countries, there is also a difference in currencies for which we use purchasing power parity

Question 8

What are the factors measured by the HDI? (human developmental index)

3 factors, each with explanation

Answer 8

1. life expectancy: better healthcare, less pollution, less stress
2. education (literacy rates): greater access to educational materials
3. Income index (GNI at PPP): greater purchasing power

Question 9

What are other measures for non-material SOL?

2 measures + what they meausre

Answer 9

1. OECD Better Life Index: a composite index that measures different non-material and material asepcts of human life including leisure time
2. PSI (pollutant standards index): measure of air quality