Practice

Free response question

Macroeconomics · Hard · 30 marks

IEO past paper: 2020 International Economics Olympiad, open questions

The richer the country, the higher the cost of living. Prices that you see in supermarkets and cafes of London generally are higher (in nominal terms) than those in Baku or Gaborone.

(a)For different goods and services, this effect is different. Provide examples of goods or services which typically cost almost the same across the world. Provide examples with high price differences. Explain.[10](b)Provide a verbal model to explain this phenomenon: why in more developed countries (with greater labor productivity), certain goods are likely to be more expensive than in developing countries.[10](c)What approach do economists use to account for these differences and compare gross domestic products between countries? If we calculate GDPs per capita utilizing this approach, will we observe more or less between-country inequality?[10]

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