3 ms·
PPP isn't based on "a potato", it's typically calculated based on a representative price index covering all the different types of goods people buy. Theoretica
by notahacker 4y ago
PPP isn't based on "a potato", it's typically calculated based on a representative price index covering all the different types of goods people buy.
Theoretically it would be possible to create a price index based on Macbooks or cars, but since most people in the world buy more food than Macbooks or cars this would obviously be misleading. When people living in developed countries move to a developing country they don't think "wow, the cost of living is high, the Macbook has a luxury tax on it" they think "wow, most things are incredibly cheap here". It is impossible to come up with a perfect PPP because people spend their money on different things, but it's a lot better than thinking a country which has inflated prices for everything is much more materially wealthy than one which has low prices for everything.
And the whole point of PPP adjustments is to get rid of the scenario where the same education contributes much more to GDP in a nation where wages and school buildings are expensive than one where they're not.