cost of living

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cost of living,

amount of money needed to buy the goods and services necessary to maintain a specified standard of livingstandard of living,
level of consumption that an individual, group, or nation has achieved. The evaluation of a standard of living is relative, depending upon the judgment of the observer as to what constitutes a high or a low scale.
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. The cost of living is closely tied to rates of inflationinflation,
in economics, persistent and relatively large increase in the general price level of goods and services. Its opposite is deflation, a process of generally declining prices. The U.S.
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 and deflation. In estimating such costs, food, clothing, rent, fuel, lighting, and furnishings as well as expenses for communication, education, recreation, transportation, and medical services are generally included. The Consumer Price Index (CPI), a measurement of the cost of living prepared by the U.S. Bureau of Labor Statistics, tracks changes in retail prices of an average "market basket." Changes are compared to prices in a previously selected base year, from which figures the percentage increase or decrease in the cost of living can be calculated. In addition to changes over time, such analyses must also consider regional variations in the cost of living, and the relative weighting of the components of the index must be reappraised periodically. The CPI is based the spending habits of 14,000 households that are considered representative of the U.S. urban and metropolitan population; data collectors collect and compile some 80,000 price quotes monthly. The first attempt to gather data on the cost of living in the United States was made by the Bureau of Labor Statistics in 1890. The dramatic increase in the rate of inflation during the 1970s led to the widespread use of cost-of-living adjustments (COLA) in wage agreements, real estate leases, and such government benefits as social security. These adjustments are often made using the CPI.

Bibliography

See bibliography under standard of livingstandard of living,
level of consumption that an individual, group, or nation has achieved. The evaluation of a standard of living is relative, depending upon the judgment of the observer as to what constitutes a high or a low scale.
..... Click the link for more information.
.

cost of living

1. 
a. the basic cost of the food, clothing, shelter, and fuel necessary to maintain life, esp at a standard regarded as basic or minimal
b. (as modifier): the cost-of-living index
2. the average expenditure of a person or family in a given period
References in periodicals archive ?
Apart from the influence the index had on wartime planning, however, a reading of the most current CPI methods manual reveals that the legacy of the modernization of the cost-of-living index during the New Deal era is still present today in some aspects of current CPI methodology.
Throughout 1942, the Bureau's Cost of Living Division made incremental changes to the index to cope with disappearing goods, government rationing orders, and changing population patterns in an attempt to make "its cost-of-living index represent each month changes in the costs of the goods and services which wage earners and clerical workers [could] actually buy in the war years.
The decision was based on the change in the cost-of-living index since January 1941.
Thus the cost-of-living index for period 1 is [3[square root of 12]]/12, which in this case is exactly equal to the Fisher index.
2) The perennial question of whether to include asset prices in the CPI can be evaluated in the context of a cost-of-living index.
Cost-of-living index theory stresses, however, that consumers can reach the same standard of living in more than one way.
The theoretical cost-of-living index was for many years regarded as purely an abstraction, an idea that could not be implemented in actual price index calculations.
Erwin Diewert published an article that suggested a relatively simple way to approximate the theoretical cost-of-living index.
By ignoring this flexibility in consumer behavior, the Laspeyres formula becomes, in terms of economic theory, an upper bound to the true cost-of-living index measure.
If both Paasche and Laspeyres indexes are calculated, however, it is possible to produce an index that is, in theory, a very close approximation to a true cost-of-living index.
Used as the true, benchmark cost-of-living index, Fisher's ideal index can assess the degree of substitution bias inherent in the fixed-weight Laspeyres calculation.
We employed two methodological approaches to construction of the cost-of-living index (COL) and calculation of the substitution bias.