When comparing living standards between or within countries, many problems can occur while considering factors that are constantly changing in the countries which may determine the living standards of the country. Factors that may effect a countrys living standards for example GDP this comes from the output of different industrial sectors: the primary, secondary and the tertiary. This can be treated as aggreated supply. GDP can then be divided by the countries population to produce GDP per capita which gives an average income value, but this statistic can be very misleading and can disguse important differences e. resulting in hidden economy.
We assume that a higher GDP per capita shows that living standards are better in one country than another. But this is where the problems arise, two countries can have similar GDP’s per capita, but one might have a small elite of very high-income earners, with a huge amount of people in dire poverty, while the other country may have fewer extremes and a very large proportion of middle-income families. So the Economic deprivation in large sections of the community can be hidden in the average creating a hidden economy.
National income statics are used to compare the living standards of different countries. Apart from the problem of excahnge rate fluctuations overtime between countries being compared, there are a number of other difficulties when making international comparisons. There may be differences not only in the way national income is calculated but also in the reliabilty of the collected data. When comparing living stnadards between or within countries it may be essential to be aware of the population or income earners the main problem that occurs is the lack of people who are willing to take part in the survey or any data that is needed.
This then erases a percentage of the population which are unknow which can make a difference while comparing in diverse areas of a country. In the UK this survey is called census. Also The two countries in question may have different climates. So for example, when comparing Greenland and Greece, Greenland may need to spend a higher proportion of it national income on heating and clothing in oder to achieve the same ‘quality of life’ as greece. Countries will therefore have different needs and tastes which cannot be readily taken into account when making international comparisons.
The two countries may provide other differences in ‘quality of life’ which are even more difficult to reflect in terms of a monetary value eg feeling of safety from attack, freedom to express ones view without fear of retribution. Other factors that make international comparisons difficult might inculde vatiations between countries in a any of all of the following: The level of unrecorded activity, such as ‘black economy’ the black economy is a hidden sector of the economy where private cash transactions go unreported and is also hidden from the government on which taxes are not paid.
This market not only includes legal-prohibited activities (ex. Drugs, prostitution, gambling activities that are illegal in some areas) but also trades in legal goods and services this is because some income is not recorded and untraceable by the government or complex financial operations because most transactions take place in cash. So the total income cannot be calculated which results in a flaw in data collection. The black economy also includes some transactions that the government may allow to be free of taxations.
Number of hours people work – It is generally believed that reduction in working hours increases labour productivity therefore increasing living standards of a country in terms of social factors for example spending more time with the family, less stress etc. Number of hours people work determines the output per worker and output per hour, and whether or not there is more productivity per worker or more out put. Even though this is recognised by many enterprises either explicitly or implicitly not many changes can be made.
But an increase of GDP may be achieved due to longer working hours. So there is more output per worker, making it positive economically. This makes it difficult to compare because maximum and minimum working hours vary in different countries. The level of public provision of goods and services – Using any economic data, such as GDP per capita over time, we must recognise that output and incomes measures can increase for many reasons other than the country producing more goods, because this is necessary if poverty is to be avoided or peoples living standards to be raised.
Output and incomes measures may increase because of the rate of inflation which has merely increased the money value of goods and services produced rather than their real value. And also different countries consume different goods and services that best fit them therefore making it difficult to compare as one country may devote huge amounts on military expenditure, while another might have a larger proportion of GDP dedicated to household consumption.
The levels of negative externalities such as road congestion, pollution. Quality of life over time can vary within a country making it even more difficult to compare with past situations as over time the products used differ along with quality as technology advances over time they improve making it hader to compare within the country over a certain time period because of new technology that did not exisit before.
But as technology has improved so the productivty has increased therfore the quality has enhanced. The distribution of national income (i. e. levels of inequality). – Economic growth is measured by an increase in the real GDP per capita. There are a number of problems that should be considered if national income statistics such as GDP per capita are used to indicate living standards.
With all averages, per capita income data does not take into account how the GDP is distributed amongst the population, if the income is unevenly distributed, then which my increase the GDP per capita to disproportionately benefit a small group of high earners and have little impact on reducing poverty of a certain sector and this then causes a problem because we are unaware where income is being distributed within the country so the living standards vary within the country maybe according to class, (rich are getting richer).
Also high income countries might have higher social costs, such as pollution and stress levels. These are not accounted for in GDP figures. Imputed rent is the economic theory of imputation applied to real estate. In owner-occupancy, the landlord-tenant relationship is short-circuited. Consider two people, A and B, each of whom owns property. If a lives in B’s property, and B lives in A’s, two financial transactions take place – each pays rent to the other.
But if A and B are both owner occupiers, no money changes hands, even though the same economic relationships exists; there are still two owners and two occupiers, but the transactions between them no longer go through the market. The amount that would have changed hands had the owner and occupier been different persons is called the imputed rent. The effect of owner occupancy is therefore that * The imputed rents disappear from measures of national income and output, unless figures are added to take them into account. * Government loses the opportunity to tax the transaction.
Sometimes governments have attempted to tax the imputed rent (Schedule A of the U. K. income tax used to do this), but this tends to be unpopular. Income inequality metrics or income distribution metrics are techniques used by economists to measure the distribution of income and economic inequality among the participants in a particular economy, such as that of a specific country or of the world in general. These techniques are typically categorized as either absolute measures or relative measures. Economic inequality refers to disparities in the distribution of economic assets and income.
The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among nations. Economic Inequality generally refers to equality of outcome, and is related to the idea of equality of opportunity. Economic inequality has existed in a wide range of societies and historical periods; its nature, cause and importance are open to broad debate. A country’s economic structure or system (for example, capitalism or socialism), ongoing or past wars, and differences in individuals’ abilities to create wealth are all involved in the creation of economic inequality.
There are various Numerical indexes for measuring economic inequality. Inequality is most often measured using the Gini coefficient, but there are also many other methods. Economic inequality among different individuals or social groups is best measured within a single country. This is because country-specific factors tend to obscure inter-country comparisons of individuals’ incomes. A single nation will have more or less inequality depending on the social and economic structure of that country. Qualitative Factors
Considerations in decision making, in addition to the quantitative or financial factors highlighted by Incremental Analysis. They are the factors relevant to a decision that are difficult to measure in terms of money. Qualitative factors may include: (1) effect on employee morale, schedules and other internal elements; (2) relationships with and commitments to suppliers; (3) effect on present and future customers; and (4) long-term future effect on profitability. In some decision-making situations, qualitative aspects are more important than immediate financial benefit from a decision.