Differences Between Standard of Living and Cost of Living

While Google searching the differences between standard of living and cost of living yesterday, I found out that there are a lot of people looking for a clear and comprehensive explanation of this terms but there was actually no article online that was able to explicitly differentiate between the two. Following from that, I will be discussing both terms (standard of living and cost of living) in this article and explain their areas of differences.

It is imperative to pay good attention to every line of this article so that you will be able to understand and grasp your aim of visiting this page.

Meaning and Differences Between Standard of Living and Cost of Living
Meaning and Differences Between Standard of Living and Cost of Living

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What is standard of living?

Standard of living is the degree of wealth and comfortability available and applicable to a particular society or community, given their population.

A country’s standard of living is largely determined by the country’s economy and the governance, more often than not, than its people itself. A good example is the great difference in the standard of living of developed nations, in relation to developing countries like Nigeria and other countries in Africa.

Factors contributing hugely to a country’s standard of living are:

1. Level of National Income and Output:  This is the total value of a country’s final output of all new goods and services produced in one year. A country’s national income is largely dependent on the total volume of production. Hence, more production means more income.

As mentioned earlier, a country’s economy is a major determinant to the nation’s standard of living. A country that earns more, is bound to have a higher standard of living, compared to one that earns lesser, this is of course relative to the governance of the country, as corruption is not a new term in governance.

The following are factors affecting national income:

a. Natural and human resources: the quality of a country’s resources influences the national income of the country. Take for example, resources like land, oil and gas, mineral deposits etc . Also the size of the population is a determinant factor, as the age structure of the population determines the number of labor force a country has.

b. Technical knowledge: everyday, new technologies are being developed. New ways of doing work faster and effective, are being sought after. A country with high technological know-how  is bound to experience higher income, in relation to other countries.

c. Volume of Productivity:  This is subject to three questions.

What do you produce?

What variants do you produce? This is to ask, “is your economy diversified?”. This question is a good question to ask in a country like Nigeria where agriculture was pushed to the back yard and oil and gas fronted like it was/is the only thing capable of production.

How well do you market? 

Countries with this, already figure out, tend to do well in producing and marketing in large volumes that it in turn boosts their economy, and of course, their standard of living.

2. Terms of Trade: this refers to the rate of exchange between exports and imports. It is the amount of import goods an economy can purchase per unit of export goods. If the export price increases more than the import prices, the country has a positive  terms of trade. Thus, this is a very important determinant factor to the standard of living of a particular country.

Thus, the rate of exchange would always affect the prices of goods, and of course, the standard of living.

3. Population Size: this is the total number of people residing in a place. Now, where the total volume of national income, is little compared to the number of people resident in the country, the level of standard of living will be low. Why? It’s because there are not enough resources to go round per head.

It is true that America has so great a population, so it is expected for their standard of living to the poor. Why the reverse is the case, is because their national income is higher, in comparation to their population.

4. National Income Distribution: This is largely how the income of the country is distributed. It is the flow with which income is shared among members of the society. If there is equality in the distribution, the income distribution would be even (that is, if everyone earns the same income, regardless of  any factors).  If it isn’t, there would be a tilt, difference, in the standard of living, dependent on the social class.

Take for example, if the income is distributed in such a way that much is deposited for the rich, that the rich become richer, while the poor remain in their poverty level, or much worse, it would be evident in the standard of living.

5. Level of Education: level of education affects the standard of living of a place/country, as with education, comes enlightenment and of course, prudence. The reverse is the case for a population of ignorant illiterates. Their standard of living, in comparison, is bound to be lower. Educated people have information, technology and informed ideas and ways of life, to their advantage.

Differentiate between cost of living and standard of living
Differentiate between cost of living and standard of living

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What is Cost of Living?

This is the cost of maintaining a particular standard of living. Cost of living shows the difference in living costs between cities. It is the total amount of money used to cover day to day expenses such as housing, food, shelter, healthcare etc.

It also shows how affordable it is, to live in a given area. For example, a person planning to migrate to Canada from Nigeria, would first have to consider the cost of living in relation to Nigeria before traveling.

Also see: Factors affecting demand and supply in economics.

Factors Determining Cost Of Living

1. The availability and demand for housing will definitely affect the cost of housing. If houses are in high demand, it is bound to be expensive, if it isn’t, the reverse would be the case.

2. Job availability: if jobs are available, quality jobs, it would definitely affect the cost of living.

3. Too many middlemen: the presence of middlemen affects the prices of goods, which in turn affects the cost of living. So, if there are plenty middlemen, the cost of living will definitely be on the high side.

4. Utilities: natural gas and electricity rates vary, depending on where you live. This is hugely affected by government regulation, consumption rates and resources. Also, water as an utility, can also affect the cost of living.  Its costs can be largely as a result of weather conditions, the availability of water systems e.t.c

5. Availability of  labour force: the labour force is a huge determinant to the cost of living in a particular state. If the labour force is in deficit, that is, not enough, the rate of services are bound to be higher and vice versa.

Meaning of standard of living and cost of living in economics
Meaning of standard of living and cost of living in economics

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Differences Between Standard of Living And Cost of Living

1. Cost of living is the calculation of the cost of standard of living of a particular society while standard of living refers to the degree of wealth of a particular population, living in a given area.

2. Cost of living is largely dependent on the individual’s income, while standard of living is majorly a contribution from the state.

3. Cost of living is the comparison of the volume of funds needed to survive, area by area, while standard of living is the level of people’s living without comparing their needs.

4. Cost of living is measured country by country, place by place, state by state. However, standard of living is only limited to comparison per country.

5. Cost of living is more of the purchasing power of the currencies, while standard of living indicates the poverty level of a set of people.

In conclusion, cost of living and standard of living are not exactly too different from each other, as there are still common grounds since both revolve around the economic life of the common man.