Why are things so expensive?

Yusuf Amuda, a diligent tricyclist operating within Lagos State, Nigeria, exemplifies resilience amidst economic challenges. Despite generating profits through his endeavors, he faces the harsh reality of barely meeting his basic needs due to soaring prices in the market. Formerly an entrepreneur, Amuda was compelled out of business by the relentless inflationary pressures, reflecting the pervasive impact of economic strain on small-scale enterprises.

Amuda’s plight is exacerbated by the removal of subsidies, which has exacerbated the already dire economic landscape. He articulates his frustration with poignant lamentations, emphasizing the depreciating value of earnings in the face of exorbitant commodity prices.

Amuda expressed deep disillusionment, stating, “Our hard-earned money seems to have lost its value. Despite daily earnings, the unrelenting rise in prices renders our efforts futile. It’s as if we’re toiling in vain.”

He emphasized, “The impact isn’t just on luxuries; even necessities are affected. I find myself having to forego essential items, like water, due to their escalating costs.”

The economic adversity extends beyond Amuda, with numerous business owners forced to shutter their operations.

A Lagos-based economist, Mr Adeyoye, noted that the pervasive inflation is exacerbated by systemic corruption among leaders, escalating insecurity, and fluctuations in the dollar-naira exchange rates.

“The exorbitant prices in Nigeria stem from multiple factors, including diminished agricultural output due to insecurity, a lack of innovative governance, and the nation’s heavy reliance on imports. Additionally, the economy’s dependence on crude oil exports while importing refined petroleum products contributes to the fluctuations in the dollar-naira exchange rates,” said Adeyoye.

The economist underscored corruption as a significant contributor, citing the persistent siphoning of oil resources, which has diminished the country’s foreign currency earnings.

While offering solutions, he emphasized, “The government must prioritize prudent fiscal management, shifting focus towards bolstering agricultural output on a large scale. Encouraging and supporting local production initiatives would facilitate exportation, thereby bolstering foreign currency reserves. This strategic approach will fortify the national currency and alleviate imported inflationary pressures. Efforts to curtail oil theft are imperative to augment revenue streams and enhance foreign reserves. Mitigating unemployment rates is paramount. Moreover, redirecting expenditure from wasteful practices towards productive investments will stimulate economic growth. Domestic oil refining is essential to mitigate fuel price volatility.”

Also speaking about the inflation, Folorunso, Fatai Adisa: A communications specialist, observes that “the current administration’s efforts to rebuild the economy have led to increased prices, echoing the Yoruba saying that progress often comes with some degree of hardship. The depreciation of the Naira against the dollar has diminished people’s purchasing power, resulting in limitations on what they can afford.”

He added, “The solution lies primarily in the hands of the government, and there are visible efforts underway to alleviate the situation through various initiatives and palliative measures. Additionally, in recent weeks, there has been a noticeable improvement in the value of the Naira. If this trend continues, it’s only a matter of time before things start to stabilize.”

Why are things so expensive?

In our daily lives, we often encounter situations where the cost of goods and services seems disproportionately high. Whether it’s the price of housing, healthcare, or even a cup of coffee, many factors contribute to the perceived expense of these items.

Understanding why things are expensive involves various economic, social, and structural factors that shape pricing dynamics.

One of the fundamental principles of economics, supply and demand, plays a significant role in determining prices. When the demand for a product or service exceeds its supply, prices tend to rise.

For example, limited housing supply in metropolitan areas often results in high real estate prices.

The cost of production, including raw materials, labour, and overhead expenses, influences pricing. Factors such as inflation, fluctuations in commodity prices, and changes in labor markets can all impact production costs.

Competitive markets tend to drive prices down due to increased competition. Conversely, monopolistic or oligopolistic market structures can result in higher prices as firms have more pricing power.

Disparities in income distribution can affect purchasing power, making certain goods and services seem more expensive for those with lower incomes.

This phenomenon exacerbates the affordability gap for essential items like healthcare and education.

Cultural norms, social status, and lifestyle choices can influence consumer preferences and willingness to pay premium prices for certain products or experiences. This demand-driven aspect often leads to the perception of “expensive” goods.

Taxes, tariffs, and regulatory compliance costs imposed by governments can increase the overall cost of goods and services. For example, tariffs on imported goods raise prices for consumers, while stringent regulatory requirements may necessitate costly compliance measures for businesses.

Speculative activities in financial markets can drive up the prices of commodities and assets, impacting the cost of goods and services downstream.

This phenomenon is particularly evident in markets like housing and energy.

In an interconnected world, disruptions in the global supply chain, whether due to natural disasters, geopolitical tensions, or pandemics, can lead to shortages and price hikes for essential goods and components.

The question of why things are expensive encompasses a myriad of economic, social, and structural factors that collectively shape pricing dynamics. From supply and demand dynamics to income inequality and government regulations, understanding the complexities behind pricing can provide insights into how to address affordability challenges and create more equitable economic systems.

Strategies for Affordability

Affordability is a critical concern affecting access to essential goods, services, and opportunities in today’s society. The escalating cost of living presents challenges globally, impacting housing, healthcare, education, and technology. However, through the adoption of comprehensive strategies, it is possible to make essential goods and services more accessible, thereby enhancing overall quality of life and fostering socio-economic equality.

Policy reforms and regulations play a pivotal role in addressing affordability issues. Governments can implement price controls on essential goods and services to prevent monopolistic pricing, ensuring accessibility for all segments of society. Subsidies and grants for necessities like housing, healthcare, and education can significantly alleviate financial burdens for individuals and families with limited resources. Additionally, offering tax incentives to businesses promoting affordability encourages prioritization of accessible goods and services, thereby benefiting consumers.

Investment in infrastructure is another key aspect of affordability enhancement. Development and enhancement of public transportation systems reduce commuting costs, facilitating access to work, education, and essential services. Initiatives such as affordable housing construction and rent control policies mitigate the housing affordability crisis in urban areas. Similarly, expanding healthcare facilities in underserved regions and increasing access to affordable healthcare services alleviate medical expenses for low-income populations.

Promotion of competition and innovation is vital for driving down costs and increasing affordability. Enforcement of antitrust laws prevents monopolies, fostering healthy market competition and lowering prices. Support for small businesses and startups encourages innovation and expands the availability of affordable alternatives to expensive goods and services dominated by larger corporations. Furthermore, investment in research and development initiatives aimed at creating affordable technologies across various sectors holds promise for reducing costs in areas such as healthcare and renewable energy.

Education and financial literacy programs empower individuals to make informed decisions about budgeting, saving, and investing, thereby improving affordability. Vocational training programs equip individuals with skills for higher-paying jobs, enhancing their purchasing power and overall affordability.

International cooperation and aid initiatives are essential for addressing affordability challenges on a global scale. Collaborating with international organizations and governments to tackle issues like poverty, climate change, and healthcare access promotes cost-sharing and resource pooling, ultimately making essential goods and services more affordable worldwide. Humanitarian aid efforts provide immediate relief and contribute to long-term recovery, improving affordability and access to basic necessities in crisis-affected regions.

In conclusion, ensuring affordability is fundamental to promoting equality, improving quality of life, and fostering economic prosperity. By implementing a multifaceted approach encompassing policy reforms, investment strategies, education initiatives, and international cooperation, societies can work towards making essential goods and services accessible to all segments of the population.