A couple points from class are worth emphasizing here with some vocabulary concepts. The first is purchasing power parity (PPP). Haughton and Milanovic used this term so it’s worth explaining. PPP is used to standardize currencies to enable cross-country comparisons. 2 definitions below:
Second, I emphasized the importance of understanding market failures. Much of the economic system assumes that markets will function. People will act and behave in their self-interest. However, a growing body of work is showing how markets fail when people act against their self-interest (behavioral economics). The following provides a nice list of market failures. The Wikipedia post is not bad, either. We’ll be reading about the public goods problem- a type of market failure – later in the semester.