and why is it important when compairing two countries’ Gross Domestic Product?
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ELI5, PPP is meant to adjust for varying prices of consumer goods in different locations. At a countrywide economy level, gross GDP is somewhat useful to compare across countries. However, the weakness of GDP is that it assumes that “$1 is $1 everywhere”. When trying to evaluate things like “quality of life” or “goods consumed by the individual”, that assumption is insufficient.
So a country with GDP twice that of another is twice as “productive” in dollar terms but that does not imply that their average citizen consumes twice as much as the other. The PPP is meant to try to adjust for this. So a PPP adjusted figure gives a better idea to compare the consumption of the average person. (It is “better” but rather subjective and this is a weakness of PPP – many more assumptions need to be made)
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