DIFFERENCE IN COST OF LIVING
A higher National Income figure is required to maintain a high cost of living. Therefore, if the cost of living is higher in country B, the standard of living cannot be three times higher. The cost of living is determined by the amount of money needed to buy the goods and services necessary to maintain a specific standard of living. “In 1890, the Bureau of Labor Statistics made the first attempt to gather data on the cost of living in the United States, introducing the cost-of-living index. In 1944 the government changed the name of its measurement from the "cost-of-living index" to the "consumer price index" (CPI), when a presidential committee made a comprehensive study and concluded that the cost-of-living index did not reflect all changes in living costs.” (US History Encyclopedia, 2010).
The difference in currency can also affect the cost of living in different countries. “Data on relative standards of living is normally adjusted to reflect estimates of purchasing power parity to take account of differences in the cost of living – so that each unit of currency has approximately the same purchasing power.” (WorkGateways, 2010). In Europe, one Euro of income in each country may not have the same real purchasing power because of differences in the average cost of living. For example, relative prices of a basket of goods and services for consumers in Britain are estimated to be 18% higher than the European Union 15 average in year 2003.
DIFFERENCE IN GEOGRAPHICAL CONDITIONS
Different geographical conditions can cause the standard of living to differ due to different climates. An example would be of the population in Europe that would have to spend on goods such as food and thick clothing to keep themselves warm during winter. During summer, they would have to spend on an entire different wardrobe to keep themselves cool. This lowers their annual income available for...