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Standard of living

The economic component of people’s welfare. This is often measured by consumption per head, or by consumption per equivalent adult, counting children as fractions of adults. This is not, in fact, a perfect welfare measure: it disregards some important factors contributing to overall welfare. First, it does not count services such as health care and education, which are sometimes provided free or at subsidized prices by governments, and sometimes have to be provided by consumers for themselves. Second, it takes no account of environmental extemalities such as pollution, traffic congestion, or crime. Third, it can be argued that income saved contributes to welfare as well as income consumed, since the assets accumulated reduce uncertainty over future consumption for their owners, thus improving their subjective well-being if they are risk-averse.

Reference: Oxford Press Dictonary of Economics, 5th edt.