As an international price index for studying purchasing power parity,the Economist's "Big Mac Index" suffers from several defects. A graduate student in Economics wishes to construct a somewhat better index. Among the following choices,the most suitable output for this purpose would be
A) a haircut
B) a laptop computer
C) a two-bedroom apartment
D) a basket of goods consisting of a Dunlop radial tire, a 60-watt General Electric light bulb, a Nokia cell phone, and a 12-ounce can of Coca Cola
E) a basket of goods and services consisting of one acre of undeveloped land, a one-mile taxi cab ride, a one-year government bond, and one gallon of milk

Question

Quizplus · Accepted Answer

The basket of goods consisting of specific items that have global market presence (such as Dunlop radial tires and Nokia cell phones) is a better indicator of purchasing power parity across countries than a product like Big Macs, which may not have the same market presence or cultural significance in all countries. Additionally, including multiple items in the basket of goods provides a more diverse and accurate representation of prices and currency exchange rates.

As an International Price Index for Studying Purchasing Power Parity,the