An analyst compares the economic output of two countries, Country X and Country Y. Both countries produce only two goods: widgets and gadgets. The analyst calculates each country's total output value using its own local prices and finds they are identical.
| Country | Good | Quantity | Local Price |
|---|---|---|---|
| X | Widgets | 100 | $10 |
| X | Gadgets | 200 | $5 |
| Total Value for X | **$2,00 |
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Purchasing Power Parity (PPP)
An analyst compares the economic output of two countries, Country X and Country Y. Both countries produce only two goods: widgets and gadgets. The analyst calculates each country's total output value using its own local prices and finds they are identical.
Country Good Quantity Local Price X Widgets 100 $10 X Gadgets 200 $5 Total Value for X **$2,00 Comparing Real Economic Output
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An economist wants to compare the real economic output of two countries, Country A and Country B, which each produce only apples and bananas. To eliminate the effect of different price levels, the economist decides to value the production of both countries using the prices from Country A.
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