"What international consumer item does the ""Economist"" use to compare purchasing power between countries?"
Purchasing power parity predicted by PPP. The purchasing power parity theory states that the exchange rate between one currency and another currency is in equilibrium when their domestic purchasing powers at that rate of exchange are equivalent. Another example of one measure of the law of one price, which underlies purchasing power parity, is the Big Mac Index, popularized by "The Economist", which compares the prices of a Big Mac burger in McDonald's restaurants in different countries. The Big Mac Index is presumably useful because although it is based on a single consumer product that may not be typical, it is a relatively
Purchasing power parity exchange market. The concept of purchasing power parity allows one to estimate what the exchange rate between two currencies would have to be to equate the purchasing power of the two currencies. Observed deviations of the exchange rate from purchasing power parity are measured by deviations of the real exchange rate from its PPP value. PPP exchange rates help costing but exclude profits and above all do not consider the different quality of goods among countries. The same product, for instance, can have a different level of quality and even safety in different countries, and may be subject to different