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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 • 138 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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  • lewiss12

    Whether something is considered cheap or expensive definitely depends on a person’s income, therefore varying from person to person. If somebody has a large income, some objects such as clothes and food seem cheaper because those objects use up less of their income. However, if somebody has a smaller income, those objects seem more expensive because they take up more of one’s income, therefore leaving less money for other necessities. It is also difficult to decide where the line is drawn between a higher and lower income and where cheaper items begin to be considered more expensive.

  • matsudae12

    For someone who makes only a small amount of money, affording “relatively expensive” things like higher education can be a problem. At the same time, people who only make a small amount of money are the ones who are in greater economic need of higher education than those who already have jobs at which they make a lot of money.

  • coya

    People who make different amounts of money each year can have different definitions about what is cheap or expensive. For example, a person who makes a larger income could think that one object is relatively cheap. On the other hand, another person who makes a smaller income could think that the same object is expensive. The person who makes a larger income doesn

  • cianciottal12

    I find it interesting that a computer is considered “relatively cheap.” How are items being classified? If the list is based on the amount of capabilities compared to the cost, then it makes sense that a computer would be considered cheap. I feel as though people tend to think of a computer as a more expensive item, something that they save their money to purchase.

  • criscionev12

    In answer to the question, having more income means a person has more money to spend. Therefore, spending money is not as “big a deal” to that person. Simply put, the more money a person has, the more worthless money becomes to them, giving them an inflated perception of cheap and expensive.

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