That video card costs more or less in your country? Wait a minute.

Hey folks. I see a lot of threads in which someone will say "Dammit this card is too expensive" or "This card has a great price," then someone from another country will say "Well, we pay way more in my country so stop whining/rejoicing."

Unfortunately this is not an appropriate way of comparing prices. You can't say, for example, that because a product costs $100 in the US and $150 AUD in Australia, that the Australians are getting shafted for having to pay the equivalent of $143.01 American dollars for the same product (using a nominal exchange rate).

What you have to do is use what is called a real exchange rate (RER), which incorporates the nominal exchange rate with purchasing power differences between countries. The nominal exchange rate alone cannot capture these differences. The equation is pretty simple: P2(e)/P1, where e= the exchange rate for Country 1 into country 2 currency, P1= the price of the product in country 1, and P2= the price of the product in Country 2. If your answer is '1' , then they are on par, anything else is an actual difference in price.

So, let's say the rate of exchange between Country 1 and Country 2 is 1= 1.36. In country 1 the price for the product is 3.40 of their currency and in Country 2 it is 2.5 of their currency. Geez, seems like Country 1 is getting screwed because if you converted that price into Country 2 currency it would be 3.4*1.36= 4.624. Wow what a bad deal! Country 1 pays the equivalent of 4.624 of country 2's currency for the product, when Country 2 only pays 2.5 of their currency for the same product!

But calculate using the RER: 2.5 * 1.36 /3.4 = 1. In actuality, when taking into account purchasing power, the two country's are paying exactly the same for that product.

I know this isn't going to stop people on this board from using the old 'oh yeah, it costs this much in my country' complaint or make people start calculating real exchange rates, but I hope maybe some of you can see that a comparison using the simple nominal exchange rate is B.S. and should be interpreted accordingly.

I gave up shortly after "Hey, folks".

America and Switzerland and a few more industrialized nations have the highest standards of living.
Average hourly labor rate is very low in many Asian countries.
The rising value of the Euro is changing a few things.

I heard that the most expersnive city in world is rykavik..... that one in iceland. London is pretty close tho.

I'm pretty sure you Aussies do have to pay more, but you can't make that argument without using the real exchange rate ratio. Well you can, but it would be silly.

It's really hard to compare, there are too many factors to keep track of. For example a video card might cost more in France than in Canada, but a programmer in France gets 6 weeks of vacation a year to play with it while the Canadian gets 2 for the first several years of work and then 3 for the rest of his life.

LOL, never visited Reykjavik myself, but I have visited London and it was scary indeed. Books were like 3 times more than at Amazon.ca, PC games about twice as much as in Canada, etc. Still, if you're in the UK and shop around online you can find some decent prices IMO.

Did you include taxes too? The US customers may have to pay a bit extra in state taxes. In Canada for example we actually pay 13% more than the Web sites show.

Yeah you are correct, the real exchange rate formula is better than just comparing nominal exchange rates, but it too is a simplified representation of reality (i.e. - a model) that doesn't capture all the different variables that go into international trade dynamics, and prices don't always capture the ever elusive concept of value. I still think its silly to claim someone is paying way more or way less of something without even trying to take into account anything other than the price and exchange rate, which people do non-stop here.

Right. Besides, there are much better examples than PC hardware. I mentioned books already (12 GBP for a paperback that's $8 in the US, ouch). Food is also a lot more in the UK. And don't get me started on the price of gas... Here in North America we are in a panic because it's approaching $1.5/liter, but I hear it's a lot more than that in Europe.

I gave up after P2(e)/P1

Sorry to hear that, man...