Which of the following best explains why it is often considered 'very expensive to be poor' in economic terms?

• A. Poor individuals receive more government subsidies than wealthier individuals.
• B. Poor individuals often pay higher prices for basic goods and services due to lack of access to bulk buying and credit.
• C. Poor individuals have more opportunities to invest in financial markets.
• D. Poor individuals benefit from lower interest rates on loans.

Answer: (B)

Verified step by step guidance

1. Understand the concept of the 'poverty premium,' which refers to the phenomenon where poor individuals end up paying more for basic goods and services compared to wealthier individuals.
2. Recognize that poor individuals often lack access to bulk buying options, which means they cannot purchase goods in large quantities at discounted prices, leading to higher per-unit costs.
3. Consider the role of credit access: poor individuals may not have access to low-interest credit or credit cards, forcing them to rely on more expensive forms of credit or pay cash prices that are higher.
4. Analyze how these factors combine to increase the effective cost of living for poor individuals, making it 'very expensive to be poor' despite their lower income.
5. Compare this explanation with the other options, noting that receiving more subsidies or having more investment opportunities does not align with the economic reasoning behind the poverty premium.