Four things set every price, and only one of them is the product

Take a bottle of Coca-Cola. Not a similar drink, not a local equivalent: the same recipe, made to the same specification, on machines built by the same handful of suppliers, filled to the same volume, sealed with the same cap.

Now move it between countries and watch the price move by a factor of five.

This is the fact the whole site is built around, and the first thing to understand is that almost none of that gap is the drink. The syrup, the aluminium, the sugar and the water are commodities that trade on world markets and cost roughly the same to buy anywhere. What changes is everything wrapped around them.

There are four wrappers. Once you can name them, price gaps stop looking arbitrary and start looking like arithmetic.

1. Whether the thing can travel

Economists split everything you can buy into tradables and non-tradables, and it is the single most useful cut in the subject.

A tradable is anything that can be put on a ship. A laptop, a barrel of oil, a kilo of coffee beans, a phone. If a laptop were meaningfully cheaper in one country than another, someone would buy it there, sell it here, and keep doing so until the gap closed to roughly the cost of shipping and duty. That mechanism is called arbitrage, and it works. Prices of tradable goods across countries sit in a much narrower band than most people expect.

A non-tradable is anything that has to be produced where it is consumed. A haircut. A restaurant meal. A hotel night. The floor space of a café. Nobody can import a Norwegian haircut into Egypt, so nothing forces the two prices together, and they can differ by a factor of ten indefinitely without anything being wrong.

Almost every everyday purchase is a blend. A cappuccino is perhaps a fifth tradable, the beans and the milk. The other four-fifths are not: the barista's time, the rent on the room you drink it in, the electricity, the dishwasher. That mix is why the coffee price gap between rich and poor countries is enormous while the gap in the price of the beans themselves is small.

2. What an hour is worth locally

Which leads straight to the second wrapper, and the biggest one.

Behind almost every non-tradable price is a wage. The cashier, the driver who brought the pallet, the person who cleaned the floor, the shift manager, the accountant who filed the returns. A country where an hour of ordinary labour costs thirty dollars cannot produce a cheap restaurant meal, because the meal is mostly hours.

This is why the price ranking on a country page and the ranking on the same page's work-time column are so often near-mirrors of each other. In dollar terms, the expensive countries are the rich ones. In time terms, the expensive countries are the poor ones, because a price that is high relative to a local wage is the definition of expensive to the person paying it.

It also explains an effect that surprises people who have not seen it before: as a country gets richer, its non-tradables get more expensive relative to the rest of the world, even if nothing about the haircut changes. Wages rise across the whole economy, including in the parts of it that never got more productive. The barber is not cutting hair faster than a barber in 1950. He is simply competing for labour with industries that are.

3. What the state takes at the till

The third wrapper is the one that can be read off a table, and it is startlingly large.

Most of the world funds itself partly through a tax charged on the sale itself: VAT in Europe, GST in Australia and Canada, IVA in Latin America, a consumption tax in Japan. Standard rates across the countries in this game run from 5 percent to 27 percent, and that difference alone can move a shelf price by a fifth before anything else has been considered.

Two refinements matter more than the headline rate.

The first is that most countries treat food differently from everything else, and they disagree wildly about how. The United Kingdom zero-rates most supermarket food. Ireland does the same. Mexico zero-rates food and medicine. Denmark charges its full standard rate on groceries with no reduced band at all. Two European countries with almost identical headline rates can therefore tax a shopping basket completely differently.

The second is that the tax point moves. Japan charges a lower rate on food bought to take away than on the same food eaten in, so a coffee's tax depends on where you stand to drink it. Several countries define a reduced rate for basic staples and a standard rate for anything considered a luxury. Legislatures draw that line; courts then spend real time deciding whether a particular biscuit is a cake.

4. What it cost to get there

The last wrapper is distance, and it is the one people overestimate.

Container shipping is astonishingly cheap per unit. Moving a tonne of goods across an ocean typically costs less than trucking it a few hundred kilometres inland at the other end, which is why an island economy's prices depend less on being an island than on how far the port is from everyone else.

Where distance genuinely bites is on the things that cannot wait. Fresh milk, fresh produce, anything that has to arrive cold. A country that has to fly in fruit out of season pays for the plane. A country that grows it pays for a truck. That is most of the apple price gap, and almost none of the gap on a can of soft drink, which will sit happily in a warehouse for a year.

Import duty is the other half of this wrapper and behaves less predictably, because it is policy rather than geography. A country protecting a domestic dairy industry can put a tariff wall around milk that dwarfs the cost of shipping it.

Which wrapper dominates which item

Rough shares, not precise ones. The point is the pattern, which is that the items people expect to behave alike do not.

Fuel is the outlier: it is a pure global commodity whose retail price is set by national politics.

Why this is worth carrying around

Because it converts a fact you cannot use into a prediction you can.

Told that a country is rich, you now know which of its prices will be high and which will not. Its restaurant meals, its haircuts and its coffee will be expensive, because those are hours. Its electronics will be close to everyone else's, because those are containers. Its fuel could be anything at all, because that is a vote.

Told that a country is poor, the same logic runs backwards, with one twist to keep hold of: the tradables that look reasonably priced in dollars are the ones that are punishingly expensive in local hours. A phone that costs the same everywhere is not the same purchase everywhere.

That is the whole trick, and it is why guessing gets easier fast. You are not recalling prices. You are estimating a wage and adding a tax.