Prices and poverty

Date posted: December 23, 2011

It’s easy to assume that most people pay the same prices for products and services they buy. In fact, this assumption is implicit in comparing how standards of living for different households change over time. But is it really accurate to say we all pay the same prices? N.C. State University economist Mike Walden responds.

“That’s a real interesting question … and it’s one in which economists have only recently been able to analyze. And the results of that analysis suggests that the answer to your question is no. We don’t all pay the same prices.

“In fact, what most of the research finds, interestingly, is that the lower your income, the lower the prices that you will pay for the same items. Now the a big question is, well, Why?Well, the research shows, for example, that if you are of limited resource, you have lower income, you are more likely to look for sales. You are more likely to go shop in discount stores. You are more likely, perhaps, to buy in bulk so you get the lower price per unit. And … I think what’s going on there is … if you do have limited income, one thing you have more of is time. So, you’re substituting your time for your income, so you’re waiting until things go on sale, you’re looking for those bulk-buy sales, and you’re going to those discount stores.

“Also we find that lower-income households, in terms of the products they buy, they often buy products that perhaps have fewer features. You could argue they’re of somewhat lower quality, but of course that will also result in lower prices.

“Now these results have been used by some economists to apply to standards of living and how they have changed over time. And if you say that lower-income households actually are somewhat paying lower prices, that shows up as an improvement in their standard of living.”

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