3 blobs in this thread

Which theory best explains why cost of living adapts to average income so well across countries

One model of prices is marginal cost. If good is fungible and barriers to entry are low competitive markets drive prices down to the breakeven point

Another is willingness to pay: suppliers drive price to what they can, how much the marginal consumer would pay. Supplier(s) collude to set this price

The reason this happens is players are payoff maximizing. This is GTO for rational econs

Which theory best explains why cost of living adapts to ave…

I pay the laborer the lowest he is willing to take, no more

Which is, at the margin, the price for food and shelter so he can work and survive

But if someone will pay him more, I am bid up to that price. But if they are paying too much they will go out of business, and laborer will take my job

Then what is the price of food and shelter? As much as the laborer will pay, which depends on his income

There’s circularity here or some kind of simultaneous decision making problem

Thinking isn’t clear, could use a different model

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