How does GDP affect cost of living?
In: Economics
It doesn’t directly. But places with a higher GDP per capita tend to have higher costs of living.
I would argue that this is because areas with higher GDP per capita create more economic value meaning that the people who live in that area are likely more educated and work high paying specialized jobs.
If people have higher disposable incomes on average then producers can charge more for equivalent goods and services since people would be willing to pay more. This is just one of many factors though. If you take housing for instance, supply can play a big role as well if you look at places like san francisco. There, it is common for someone to be earning six figures or more and the city has an issue with having a healthy supply for housing meaning you have many wealthy people competing for a limited number of homes. That is why it is the most expensive place to live in the US.
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