How are PPPs calculated?
The easiest way to see how a PPP is calculated is to consider a product which is identical in two countries. A simple example would be a litre of Coca-Cola. If it costs 2.3 euros in France and $2.00 in America then the PPP for Coca-Cola between France and the USA is 2.3/2.00, or 1.15. This means that for every dollar spent on a litre of Coca-Cola in the USA, 1.15 euros would have to be spent in France to obtain the same quantity and quality – or, in other words, the same volume – of Coca-Cola. PPPs are not only calculated for individual products; they are also calculated for various groups of products (e.g., refreshments, vegetables) where PPPs are a geometric average of price relatives of various products in the group.