Differentiate between goods and expensive goods

Reference no: EM1373693

As an economy increase and productivity grow, real wages tend to rise - people get richer on aggregate. Real wage growth implies that people are able to buy more of the services that are in the basket of goods [the basket that is taken to measure inflation]. So they can buy more of these goods , or presumably other more expensive goods (?)

My question is that as people earn more, in real terms, and the economy and productivity is growing [such that companies are able to continue increasing real wages] will there not come a point when people start switching over to higher priced goods , meaning that the producers of the lower priced goods go out of business and they in turn have to sack their employees- how does this affect things then? Is this what is meant when people/economists talk of economies moving to higher value added products - but how can this be sustained if people switch over to high priced goods which causes employees and companies in the lower priced goods market to go out of business?

I would very much appreciate an explanation which ould help me to resolve the above confusion.

Reference no: EM1373693

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