If competition drives down prices, why is USA so expensive?

[Winston]

If competition in the free market drives down prices, then why is cost of living in America so high? Why are house prices, rent prices, cost of medical insurance, and price of hotels so damn high in America? Shouldn't they be lower if free market competition drives down prices?

Also, if capitalism is the best system, why has it thrown Russia back into being a third world country and led to chaos there?

[momopi]

If competition in the free market drives down prices, then why is cost of living in America so high? Why are house prices, rent prices, cost of medical insurance, and price of hotels so damn high in America? Shouldn't they be lower if free market competition drives down prices?

Also, if capitalism is the best system, why has it thrown Russia back into being a third world country and led to chaos there?

Russia has a GDP per capita of $14,600, and is ranked 6th largest economy in the world by PPP. It doesn't qualify as a 3rd world country.


Housing prices are affected by supply/demand, people's ability and willingness to pay at certain price. People's ability to buy is affected more by mortgage lending, and ability to rent affected more by their income (ratio of 1/3 income used by landlords).

In coastal area of OC, California, land is a premium and a nice house could cost you $1 million. But in Texas, the same sized house on a larger lot might only cost you $100k-$200k. That's the nature of fre market, where market forces determine the market price.

Other factors to consider:

* Real estate cannot be compared to retail products. If you sell 10,000 laptops today, you can easily import another 10,000 or 20,000 units. You can't do that with houses. Even in areas with lots of land for building, it still takes months or even years to get building permits, put in infrastructure, foundation, etc.

* In 1974 the average size of an American house was 1,695 sq ft. In 2004 it's 2,349 sq ft. Bigger house = more $$.