Macroeconomic Activity

Material and Non-Material Living Standards

Do people who live in Australia have a high standard of living? There are many people around the world who believe that we do, and they are able to produce a great deal of evidence to support their point of view. If you are planning to make your own assessment of living standards, it is important that you are able to distinguish between material living standards and non-material living standards.

Material Living Standards

When people think about the work that economists do, they are often thinking about the assessment of material living standards. At a simple level we can say that a person might have a higher standard of living if they have access to more material possessions. This isn’t always true, but it is easy to see the logic behind this assertion. While a person with four cars might not be noticeably happier than a person with three cars, it is likely that they will both have a higher standard of living than a person who can’t afford to buy even one car.

In a sense, this is an application of Gossen’s first law – the law of diminishing marginal utility. In Economics, utility is a term that is used to describe relative satisfaction with a decision. For example, if I am hungry and I eat an apple, I might conclude that this was a good decision, and my utility increases. On the other hand, if I chose to eat a chocolate bar I might find that my hunger is satisfied, but the taste did not really appeal to me. Although my utility has increased, it has not increased by as much.

Gossen suggested that even though the apple did increase my utility, a second apple would not increase it by as much. A third apple would have an even smaller impact, and each subsequent apple would be even less enthusiastically received. This became known as his first law, and we can see the application of this law in the example above about cars. The first car a family owns will help them to travel greater distances, move more people in one trip, and even move larger items like parcels or furniture. These things all help to increase a person’s utility. A second car will not increase utility by as much.

Non-Material Living Standards

While many people understand the work on material living standards that is done by economists, some are surprised to discover that economists also work on trying to understand the non-material factors that can influence our standard of living. More and more frequently published assessments of living standards are trying to account for some of the non-material factors that affect the way in which we live.

For example, imagine that you could click your fingers and reappear in any other country on Earth. If we assume that all of your material possessions would be maintained, which country would you like to go to? You will now be making your decision based on non-material factors. In other words, your decision will move from one that is largely financial, to one that is based on other factors that will affect your quality of life. It is often difficult to measure these factors, but this certainly doesn’t change the fact that they will have an impact.

For example, would you rather live in a country which has very low levels of pollution, or one in which the pollution is so strong that the majority of people will only go outside wearing a mask over their mouth and nose? The answer is obvious; pollution has a direct impact on our standard of living, and yet it is not normally identified as a measure that would be considered by economists.

Some other factors that might be considered are:

1. Access to leisure facilities

2. Safety in public areas

3. Cultural events and facilities (like art galleries and libraries)

Each of these factors has a significant impact on our lives, and must therefore be considered before a final assessment of living standards can be produced.

Australia?

At the beginning of this page it was asserted that Australians maintain a relatively high standard of living. You will be pleased to know that external measures certainly suggest that this is true. For example, each year International Living Magazine publishes a comprehensive list, which you can see here. In 2010 Australia was ranked second to France.

Current Page: Material and Non-Material Living Standards