If the average person has two sets of clothes in one society and thirty in another, then the parity of price of clothes is hard to assess. It certainly cannot be assessed in terms of the cost alone or the number of outfits that a person "should" have (Taylor & Taylor, 2004). It might be set at the percentage of annual wages that a person spends on clothing, but even this can be very approximate because of different ideas of what constitutes a sufficient amount of a particular type of good needed for a satisfactory life.
To compensate for the fact that goods can and usually do have different values even when they have the same costs in different countries, economists can use a "relative" version of purchasing power parity in which no absolute value is attempted between certain goods or groups of goods and the only thing that is set at parity is the exchange rate of the two currencies as they are affected by both depreciation and appreciation.
The more similar two nations are, the easier it is to determine (whether by absolutist or relative methods) the parity of purchasing power for residents in those two nations. However, even when the economies and societies in question are relatively equivalent, sometimes a proxy in the form of an "international dollar" is used to create a neater equation for setting parity...
(Country statistical profiles.)
OECD Factbook 2010: Economic, Environmental and Social Statistics - ISBN 92-64-08356-1 - © OECD 2010
Prices - Prices, labour costs and interest rates - Consumer price indices
CPI: all items
3-year average at the beginning of period
3-year average at the end of period
Average annual growth in percentage
United Kingdom
PRT
3.197063457
2.732998412
Portugal
EU27
4.951715971
2.798027689
EU27 total
References
Burdett, K. & Judd, K. (1983). Equilibrium price dispersion. Econometrica 51(4): 955-69.
Country statistical profiles. Retrieved from http://stats.oecd.org/Index.aspx?DatasetCode=CSP2010.
Lamont, O.A. & Thaler, R.H. (2003), Anomalies: The Law of One Price in Financial Markets. Journal of Economic Perspectives 17: 191 -- 202.
Taylor, a. & Taylor, M. (2004) the Purchasing Power Parity Debate. NBER Working Paper No. 10607.
