Prices and Salaries in Big Cities

Hello,

I believe it is generally accepted to assume that Big Cities (i´m talking about New York, London, Tokyo, , etc) usually have higher costs of living and higher prices. Also, people who work here have usually higher salaries.

What do you think justifies this higher salaries and higher prices? Why should the same product/service be more expensive in these places?

(edited 11 years ago)

Reply 1

danny111

3

It's not the same product/service. Location, location, location.

Reply 2

Luizio

OP

What happens, for instance, in supermarkets? Are prices usually higher too?

Reply 3

hellomoto170

14

Original post by Luizio

Hello,

I believe it is generally accepted to assume that Big Cities (i´m talking about New York, London, Tokyo, Manhatan, etc) usually have higher costs of living and higher prices. Also, people who work here have usually higher salaries.

It all comes down to supply and demand, if people want to live in cities, how does that work? There won't be enough houses etc, so prices go up to filter out the demand. If it costs more to buy a house, it'll cost more to live, if it costs more to live, you will need to earn more money and hence salaries will increase.

(edited 11 years ago)

Reply 4

Luizio

OP

Original post by hellomoto170

It all comes down to supply and demand, if people want to live in cities, how does that work? There won't be enough houses etc, so prices go up to filter out the demand. If it costs more to buy a house, it'll cost more to live, if it costs more to live, you will need to earn more money and hence salaries will increase.

I made a mistake there about Manhantan and NY :s-smilie:

, sorry about that.

But what you said is precisely my point. Should a worker who lives and works in a "Big City" make more than another worker with the exact same qualifications and skills but lives in a "small city"? That´s my question. If so, that would justify partly differences in prices and salaries.

Thanks.

Reply 5

hellomoto170

14

Original post by Luizio

I made a mistake there about Manhantan and NY :s-smilie:

, sorry about that.

But what you said is precisely my point. Should a worker who lives and works in a "Big City" make more than another worker with the exact same qualifications and skills but lives in a "small city"? That´s my question. If so, that would justify partly differences in prices and salaries.

Thanks.

haha no worries :smile:

I see your point but salaries have to be relative to living costs wouldn't you agree? If two people have the same skills and do the same job, why should they earn different amounts, it's a fair point but it all comes down to the fact that they need more money to afford the big city life I suppose. I'm no expert, I'd be interested in other inputs too but that's my initial view.

Reply 6

MagicNMedicine

20

It just comes down to the interaction between supply and demand and the availability of alternatives.

Now you can buy a lot of goods off the internet there is a lot more equalisation of prices. You aren't going to find books, DVDs, video games etc more expensive in London than in the north because if stores tried to charge higher prices people would just buy online.

However rent and house prices will be higher in London because there is more demand relative to the supply and you can't order a house online.

Because house prices are higher peoples cost of living is higher in London which means their reservation price for taking a job (the minimum they will accept) is higher. This increases firms costs. So in the case of goods or services that are not tradeable either in terms of facing competition from imports, or from online sales, the firms will pass those costs on to consumers in higher prices. This is why going to the pub you will find drinks more expensive in London, similarly going to a sandwich shop etc. In the case of goods that face competition from online sales, firms will have to keep the prices down which means either they accept lower profits if they can absorb the higher staffing costs (and costs of rent on their premises) or just not sell those type of goods if its not profitable.

Locating a business in London is expensive, however you do have access to a large market because so many people live there, also there may be savings in terms of agglomeration effects (ie similar firms are located in close vicinity so you may have low transport costs for firms in your supply chain etc).

Reply 7

Luizio

OP

That´s actually a good explanation, thank you.
I also thought that another plausible explanation for higher salaries would be higher skills and education from people who live in those cities. However, I think that wouldn´t explain why prices are also higher for certain products.

Reply 8

NidaJaffri

13

Original post by Luizio

Hello,

I believe it is generally accepted to assume that Big Cities (i´m talking about New York, London, Tokyo, , etc) usually have higher costs of living and higher prices. Also, people who work here have usually higher salaries.

What do you think justifies this higher salaries and higher prices? Why should the same product/service be more expensive in these places?

Not true, you'll find income inequality to be the most evident in the city. Some are piss-poor, whereas others are substantially rich! Wall Street traders make millions, teachers make mediocre, where as a struggling artist might earn much less.

Reply 9

danny111

3

Original post by Luizio

I made a mistake there about Manhantan and NY :s-smilie:

, sorry about that.

But what you said is precisely my point. Should a worker who lives and works in a "Big City" make more than another worker with the exact same qualifications and skills but lives in a "small city"? That´s my question. If so, that would justify partly differences in prices and salaries.

Thanks.

Coz its cheaper to live in the small town so he can be happy with a smaller salary.

The better question you should ask is why firms go to the city and pay higher wages there if they could have the same work in a small town.

Reply 10

Luizio

OP

Original post by danny111

Coz its cheaper to live in the small town so he can be happy with a smaller salary.

The better question you should ask is why firms go to the city and pay higher wages there if they could have the same work in a small town.

That would happen if they could charge higher prices (which I think happens. Higher prices are the reason those firms have to pay higher wages in the first place) or if, somehow, if they can get other benefits.

I think that´s a good question though.

But from your answers I think it´s fair to say that big cities have their own kind of "inflationed" ecosystem. Prices are higher but people receive higher salaries, real income stays the same as other people.

I also agree with you NidaJaffri when you say that about income inequality.

(edited 11 years ago)

Reply 11

Luizio

OP

For people who live in a big city: how are prices in supermarkets? are they usually higher than other places or is it basically the same?

Reply 12

CoolStoryBroo

15

Original post by Luizio

For people who live in a big city: how are prices in supermarkets? are they usually higher than other places or is it basically the same?

If anything I'd expect prices in big cities that are flooded with supermarkets to be lower than prices at a supermarket in a small villiage because of monopoly power

Prices and Salaries in Big Cities

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