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What’s Cheap? What’s Expensive?

Sep 10, 2011 • Businesses, Demand, Supply, and Markets, Developing Economies, Households, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 162 Views    5 Comments

Starting with, “…eating and clothing ourselves is getting easier all the time,” an Atlantic article discusses “cheap” and “expensive.”

Relatively cheap:

  1. computers
  2. media
  3. toasters, washing machines, other manufactured goods
  4. food
  5. internet movies
  6. cell phones
  7. clothing

Relatively expensive:

  1. home energy: electricity, natural gas, oil
  2. homes and apartments
  3. health care
  4. medical insurance
  5. higher education

Why?

Briefly stated, “productivity divergence.” To be discussed tomorrow.

    The Economic Lesson

    We can define “cheap” and “expensive” by looking at household spending. Cheaper items require an increasingly smaller proportion of our income. Food and clothing are the perfect example.  90 years ago, households used more than one-third of their spending for food and clothing. Now, according to the BLS, the total is closer to 15% for a family earning $62,000 before taxes.

    An Economic Question: How does income relate to what we define as cheap and expensive?

     

     

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