The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States. A person who is earning $30,000 in the United States would need to earn _______ in China to have the same standard of living.

Question

The table shown displays the price-level adjustments for Australia, China, and Mexico as compared to the United States.  A person who is earning $30,000 in the United States would need to earn _______ in China to have the same standard of living.

Quizplus · Accepted Answer

To compare the standard of living between two countries, we use the purchasing power parity (PPP) adjustment. From the table, we can see that China has a PPP of 3.45, which means goods and services are 3.45 times cheaper in China than in the United States. To maintain the same standard of living, a person earning $30,000 in the United States would need $30,000/3.45 = $8,695.65 in China. However, we are asked for the income needed to have the same standard of living, which is the reciprocal of the PPP adjustment: 1/3.45 = 0.29. Multiplying $30,000 by 0.29 gives us $8,700, which is closest to choice C: $22,500.

The Table Shown Displays the Price-Level Adjustments for Australia, China