International price comparison

The objective of international price comparing is to produce purchasing power parities. A purchasing power parity is an exchange rate with which the prices of the commodity baskets in two countries are made identical by converting them into one, common currency. Purchasing power parities measure the value of money in a national economy on the basis of the volumes of goods and services that can be purchased with its currency. This gives a clearer picture of output per capita of a particular country’s national economy than would be provided by mere conversion of the value of its gross national product or gross national income (usually) into euros or US dollars.