Eli5: What is Purchasing Power Parity?
In: Economics
PPP helps correlate how far various incomes go in different countries. Say average income in one country is $20k but only $5k in another. It would appear that the people in the first country are 4x better off since their income is 4x. But if rent, and bags of rice, and chickens, and doctors’ visits, etc. all cost 1/2 what they do in the wealthier country, then people in the poor country are only 2x worse off, not 4x worse off because their $5k buy them what would cost $10k in the wealthier country.
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