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

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2
Q

What does PPP adjust for?

A

Cost and price differences between countries

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3
Q

What does the big mac index do?

A

Provides an easy method for measuring PPP between different countries

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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

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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
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6
Q

What is the effect of differing exchange rates?

A

They can increase/decrease the purchasing power of tourists

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