Cost-of-Living Index

A cost-of-living index is a theoretical framework that measures the relative cost of living over a specific period of time. The framework used is a price index, which is a calculated average of prices for specific goods or services within a certain region, during a pre-determined interval of time. This index determines what is known as the “cost-of-living”, or the cost necessary to maintain a certain standard of living. The basis of the cost-of-living index is attributed to Russian economist A.A. Konüs, who based the index on the theory that consumers attempt to gain as much utility as possible from the money they have to spend. Both the price index and the cost-of-living index are variable depending on the region. This in turn, makes the cost-of-living index variable and comparable between different areas. The true cost-of-living index is the cost of achieving a standard of living in one year compared to the cost of achieving the same level the following year.

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