Cost of Living
It is the total amount of money which a household (a consumer or an individual) spends on all goods and services which he consumes in a given period – a month or a year. They include cost of food, clothes, shelter (rent), transport (fare), fuel for car, kerosene for stove, drugs, water rate, electricity bill, repair, etc, incurred by an individual per period. The sum of all these expenditures plus others not mentioned above is called ‘Cost of Living’.
Cost of living is determined by the general price level and it is measured by the retail price index. An increase in prices of goods and services means that cost of living has gone up, and vice versa. A high cost of living means that total expenditure on goods and services by an average family per period is high.
Standard of living
It is the level of welfare (the general well being) of people of a country in a given period.
It is the level of consumption of goods and services by people of a country in a given period. Briefly, it is ‘consumption per head’.
It is determined by the level of national income or quantity and quality of goods and services available to people of a country. The higher the quantity and quality of goods, services and infrastructure – social amenities in a country, the higher the standard of living of the people, and vice versa.
It is important to note that the mere figure of the national income does not necessarily indicate the standard of living. It should be related to the population size. Hence, we (economists) use the term per capita income’, ‘output per person’ or ‘consumption per head’. The higher the per capita income, the higher the standard of living, and vice versa.
Relationship between Cost of living and Standard of living
Cost of living determines the level of standard of living. Increase in prices of goods and services causes a rise in cost of living. And it makes people to consume a fewer quantity of goods and services than before. This leads to a fall in standard of living and vice versa.
Briefly, a high or a rise in cost of living (increase in prices of goods and services) lowers standard of living as it makes people to consume less quantity and quality of goods and services than before. While a low or a fall in cost of living (decrease in prices of goods and services) causes a rise in standard of living as it makes people to consume more quantity and quality of goods and services than before.