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What Causes an Increase in Cost of Living?

The cost of living rises due to various factors, including inflation, housing shortages, and increased demand for goods and services. As wages struggle to keep pace, everyday expenses can become burdensome. Understanding these dynamics is crucial for financial planning. How does this impact your budget? Join us as we examine the implications for your wallet.
Erik J.J. Goserud
Erik J.J. Goserud

An increase in cost of living can be driven by a number of things. From an individual perspective, this is generally done by relocating to a place that costs more or moving to a more expensive apartment or house. From a broader locational perspective, such an increase is driven by classic economical principles like supply and demand.

It is common knowledge that different areas have varied costs of living associated with them. New York City, a notoriously expensive place, does not cost the same to live in as Landisville, Pennsylvania. There are reasons for this, however, as New Yorkers charging seven US Dollars (USD) more for a fast-food meal are not arbitrarily doing so to punish visitors.

When the average cost of living goes up, income needs to be adjusted to reflect this change.
When the average cost of living goes up, income needs to be adjusted to reflect this change.

Economics is a very complicated science, which studies the decisions people make that drive market behavior. Markets can be thought of as any medium through which a good or service can be purchased from a buyer. Cities are giant markets, for example, with many goods available to eager consumers. The supply refers to the amount of a good available, and demand describes how much is desired by people. The relationship between these two factors can dictate prices.

These two variables can cause an increase in cost of living in certain circumstances and are generally inversely related. If something is heavily desired, there is probably not much left. The need for the product also allows the seller to charge more per unit. In a city, for example, where there are many people jousting for housing in a relatively small area, property owners can charge much more because they know someone out there needs the space and is willing to hand over the money for it.

The opposite is true when a good is not wanted. If no one wants a fork that doubles as a straw, then the inventor of this "fraw" will probably have to virtually give it away at a low cost. Urban settings, due to the complexity of their markets and high demands, offer an increase in cost of living as opposed to less dense areas. This is not always true, though, as many desired rural residences can be expensive due to popularity.

A person can increase his or her own cost of living by changing his or her lifestyle. This lifestyle change may be locational or situational. A situational change that causes an increase in cost of living could be a person deciding to eat at fancier restaurants or to buy a car with higher payments. A locational example is a person deciding to move from a farm in central California to an apartment in Los Angeles.

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Discussion Comments


@pleonasm - Unfortunately there isn't really a choice in a lot of cases. The cost of living isn't the only thing people are considering, after all. School districts, the local community and so forth are also things to consider.

I don't know why but cost of living in general seems to have gone up so much in the last few decades. It used to be so much easier to live well off a job based around unskilled labor. These days you will barely get by if you have two of them.


@Fa5t3r - One thing I don't think gets considered enough is the time factor. It might be cheaper to live out in the suburbs even if you add up the price of travel to work, but you might be spending a couple of hours or more commuting per day and that's a big chunk of daylight hours where very little will get done.

This might be a bit cynical, but if you put an hourly wage on those travel hours and add that to the bill for living in a place far from your work, you might end up seeing a different picture.


I'm always kind of shocked by the differences in prices between places that aren't even that far away from each other. I guess it's got something to do with how far they are from the source of the food or something like that, but fruit and vegetables seem like they can almost double in price depending on where you go.

But then, it's never as simple as checking the local stores. You have to factor in your own transport to and from work and your rent and school fees and so forth. It might seem like an inner city apartment is expensive until you look at all the other factors.

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    • When the average cost of living goes up, income needs to be adjusted to reflect this change.
      By: highwaystarz
      When the average cost of living goes up, income needs to be adjusted to reflect this change.