[mattigames]

People don't even conceive the difference, in Buenos Aires you can rent a great house in a great neighborhood for 800 USD per month, in San Fran you get a shared room where other 3 people live for that much -IF even that-. In SF you spend at least 5 dollars going anywhere and going back using public transport, in Buenos aires $2 is more than enough to go the the opposite side of the city and back.

[lucb1e]

I know it is that way, but I don't understand it. It always seems to me like it just indicates that the exchange rate is wrong: clearly I can buy more stuff if I convert my money to pesos and spend them there, so the peso is just worth less than the amount we get per euro.

Could someone recommend some a website or blog post that explains this? (Or is it a simple enough explanation to fit in an HN comment without going hugely off topic?)

[chime]

It's related to Purchasing Power Parity [1] and a good example of that is the Big Mac Index [2]. Basically, even if you adjust for exchange rate, the same amount of currency can buy 2 apples in one country and 4 in another. This should not be possible in a globalized market because of the Law Of One Price [3]. However, that only really applies in the long term, for buyers with perfect information (i.e. full knowledge of all price/quantity options), and for goods that are tradable. Land is not tradable internationally. You can't just move 1000 sq ft. from Argentina to US. Same with labor e.g. people who speak a specific language or perform a specific skill. Add to that local taxes, transportation, and energy costs and you can see why the same apple costs more in a different place.

Gas stations next to each other but divided by a state line in the US have different prices. Taco Bell sells the same burrito for different prices. The same factors apply internationally too, nothing to do with exchange rate.

Hope this was as ELI5 as necessary for HN-level discussion.

https://en.wikipedia.org/wiki/Purchasing_power_parity https://en.wikipedia.org/wiki/Big_Mac_Index https://en.wikipedia.org/wiki/Law_of_one_price

[idontpost]

> Gas stations next to each other but divided by a state line in the US have different prices

Hell, gas stations divided by a street have different prices. In one case I saw, the one you could see from the freeway was +$0.50 per gallon compared to the one you couldn't see from the freeway.

[Drdrdrq]

Interestingly enough, I have seen gas stations very close to each other with very different prices. This was close to an airport so I assume the idea is to rip off tourists who don't have time to search for cheapest fuel before returning the rented cars. At least that was the only explanation I could find that didn't involve conspiracy theories (Catania, Sicily, Italy).

[agf]

So why haven't you done that, one of the times in the past you've thought this?

All the reasons you haven't are why everyone else doesn't either, so that's why it's the proper exchange rate.

[lojack]

What makes you attribute that to exchange rate when you can do the same thing with different parts of the US? $800 for a nice house in a nice part of town isn't that far off from prices where I live (Cleveland).

[retsibsi]

In the case of housing and transport, it's easy to see why prices can be very different in different parts of the world: cheaper housing basically just means that not as many people (relative to the number of houses available) are willing and able to spend a lot of money to live in that location; transport prices probably differ for a bunch of reasons, but the main point is that there's no reason they should converge, as transport within city X is not a possible substitute for transport within city y.

For other goods, you should be surprised if the price discrepancy is one that you really could exploit for significant profit (after accounting for shipping, import/export restrictions and taxes, and so on) -- but otherwise, I don't think it's a very strange phenomenon. Prices will always be set somewhere in the overlapping region between the cost of production (and distribution, and taxes, minus any subsidies, etc.) and the amount that customers are willing and able to pay. Both of those amounts can vary pretty dramatically from place to place.

[jussij]

Rental housing is a market and just like other markets it can be modelled using the economics described by the demand curve.

The demand curve maps the relationship between supply, demand and price.

It says that for high demand and low supply the price is high, for low demand and high supply the price is low and over time supply, demand and price will find an equilibrium.

So if you consider the housing market, on the supply side you are looking at a constrained resource (i.e. it is constrained by the land available to build).

The demand side will be driven by the numbers of people looking to rent and that will be driven by many other factors like work prospects, quality of life, crime rates etc etc.

So for places like SF there will be great demand for that limited housing which means the price (i.e. the rent) goes up.