Why is it so expensive to live in relatively "poor" countries?

Question

Although I was an economics major in college, I can't figure out how the Czechs seem to artificially keep prices high here in Prague. A typical salary here is often only $800 - $1,000 a month, but a normal size bottle of coke, it is $1.50, higher than in the U.S. Clothes cost a fortune, way more than in U.S. Average casual shoes are $100 or more.

Even small, depressing apartments are grossly over priced. A tiny, two bedroom apartment (75 sq. meters) that is a 15 -20 minute tram ride from the center can cost $1,000 - $1,400 per month. It doesn't make any sense.

People tell me they are just catering to tourists, but I am looking at the same apartments a Czech citizen would. The prices are ridiculous. If someone has a rental property, they won't sell it because they can make so much.

How are they keeping the prices artificially elevated? There is not a shortage of housing here. Some apartments stay vacant many months, but the owners won't discount them.

All these expensive apartments can't be aimed at tourists and rich foreigners. There are not enough of them. Why does it seem like, throughout the whole world, the prices do not reflect the local economy?

Cell phones are very expensive, as are the rate plans. A simple school notebook (with maybe 150 pages) costs $10 !

Prices just don't make sense. They are a little cheaper outside the city center, but not much, and sometimes not at all. What happened to the days when people would flock to "poor" countries because they could live like kings? When did prices worldwide become homogenous, and seem to be directed at only rich people? I remember back in the 1960s, you could still travel anywhere, and the local prices were dirt cheap, and it could not all be attributed to a strong dollar. My uncle lived in Turkey, surrounded by luxury, for very little money. People used to go to Mexico because the prices were dirt cheap, but now all prices are denominated in dollars.

Answer 1

Only local goods are priced to reflect local wages, imported goods are priced from the wages of the country of origin plus transportation. I know of no city in the EU or the US with a population over a million where you can rent a 2 bedroom apartment 15 or 20 min from downtown on public transportation for less $1000 a month. In general I would expect to pay near $2000, and much more in London, NY or SF.

Answer 2

Yes, you're right, I'm from Prague and everything is true. It really is possible to live with $1000 or less a month. You just have to think more what you buy, check prices, eat out less, stay in a inn instead of a hotel on holidays.
What doesn't make sense to you? High prices of flats? It's life. I don't know where you checked the prices but if you did in some "rich-foreigner-oriented" catalog, don't be surprised to get more expensive flats. Normal price of a 100 sq m flat not exactly in the city center may be about $500 - $600.
I was also very surprised that all the stuff in supermarkets in the US are cheaper than here in the Czech Republic. It's because Walmart and others are importing these things in millions from china and have great economies of scale. Our economy is not so developed and big to perform this. That's why I bought my laptop in the US :)
And don't forget,, we're not so poor anymore.

Answer 3

It is a common but mistaken expectation that prices of goods and services will be cheaper in poor countries as compared with rich countries. Prices depend on demand and supply forces. Unless there is relatively high scarcity, prices can not be higher. So, in Czech there may be extreme shortage of apartments in the city relative to demand or/ and very high taxes on rental income/ house property. There may be some other products in that country which are cheaper.
In general poor countries tend to produce low quality, local raw material based products cheaper if the labour costs are cheaper because of large unemployment. The fact that owners keep apartments vacant rather than let them out at lower rentals has something to do with the owners' wealth status, their concentration (small group monopoly cartel) and the expectation about future prices. After the fall of communism world over, communists did not lose any opportunity to acquire assets with illgotten moneys and made themselves rich enough. It will take time to develop competitive market mechanism to become operational in such erstwhile communist countries now showing communism withdral symptoms ( like when smokers suddenly stop smoking after a few secades on =regular smoking).
In any case, the examples you have given are very interesting and surprising, though explainable at a deeper level.

Answer 4

I used to live outside of Prague {about 20 minutes away}, I owned the apartment and I paid CZK 4000 just for utilities. Plus the cost of food, phone bills.... I made CZK 10 000 a months, so you do the counting. I could live with that, but sometimes at the end of the month I had to eat in at my parents, because I had no money left. And I had a good job for internetional company {Mitsubishi}, believe or not, there are people that make much less.

Answer 5

My best friend used to go to Prague all the time,he said it had something to do with attracting tourists.Back then (early 90's),the Czech Republic was not that popular for tourists.(according to my friend)

Answer 6

If you think prices are higher than wages, it's either taxes or fashion. Plus regulated exchange rate for imports.