Discuss purchasing power and its relationship with income

Question

What will be an ideal response?

Answer 1

ANSWER: Even when incomes rise, a higher standard of living does not necessarily result. Increased standards of living are a function of purchasing power. Purchasing power is measured by comparing income to the relative cost of a standard set of goods and services in different geographic areas, usually referred to as the cost of living. Another way to think of purchasing power is income mi-nus the cost of living (i.e., expenses). In general, a cost of living index takes into account housing, food and groceries, transportation, utilities, health care, and miscellaneous expenses such as clothing, services, and entertainment. When income is high relative to the cost of living, people have more discretionary income. That means they have more money to spend on nonessential items (in other words, on wants rather than needs). This information is important to marketers for obvious reasons. Consumers with high purchasing power can afford to spend more money without jeopardizing their budget for necessities like food, housing, and utilities. They also have the ability to purchase higher-priced necessities.