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But if you calculate PPP for a basket of goods instead of exclusively for internet GB, it shows the comparison that I would like to see, doesn’t it? I had the
by soneca 6y ago
But if you calculate PPP for a basket of goods instead of exclusively for internet GB, it shows the comparison that I would like to see, doesn’t it?
I had the impression that using PPP for a basket of goods is how it is usually used.
- smabie 6y agoPPP is used to talk about money. For example, I could compare salaries in different countries to each other and using PPP might give me a better representation than the exchange. If we try and use it to compare goods not in a basket, it's problematic. Everything in the basket is the same price, but stuff out of the basket is now a different price. It doesn't make logical sense with assumptions PPP has. If you used PPP in that way, you're basically saying that the law of one price holds for only the things in the basket, and not for stuff out of the basket. This fundamental distinction between the things in the basket and out of the basket is artificial and doesn't make sense. After all, we could then drastically change the price of something by just adding or removing it from the basket. What you're after is relative cost of a good, normalized by the wealth of an average buyer. This is a fair point, but PPP doesn't do that for your. PPP gives you relative value of money, using the market price and the law of one price.
- nl 6y agoThis is incorrect. PPP is absolutely useful (and often used) to compare prices of goods outside the PPP basket. For example [1] uses PPP to compare things like rent and grocery costs so they can say things like "Rent prices in London are 19% higher than Sydney". [1] https://www.budgetdirect.com.au/interactives/costofliving/compare/sydney-vs-london/ https://www.budgetdirect.com.au/interactives/costofliving/co...
- soneca 6y agoGot it, makes sense, thanks