Purchasing power parity and the big mac index Flashcards
1
Q
What does PPP involve?
A
Looking at a basket of goods to determine effective living costs
2
Q
What does PPP adjust for?
A
Cost and price differences between countries
3
Q
What does the big mac index do?
A
Provides an easy method for measuring PPP between different countries
4
Q
Why is the big mac used in the index?
A
As a universally available, standardised product, the prices should, in theory, be extremely similar from country to country
5
Q
List some potential causes of price differences between countries
A
- Differences in per capita incomes
- Variation in supply costs
- Different exchange rates
- Differnces in taxation
- Different levels of competition
- The impact of tariffs
6
Q
What is the effect of differing exchange rates?
A
They can increase/decrease the purchasing power of tourists
