system
Given the following post, respond as if you're commenting on Reddit:
human
When it is said that someone in a third world country lives on a dollar a day, what does that actually mean?

When it is said that someone in a third world country lives on a dollar a day, what does that actually mean? 

What if you could buy a whole entire mud hut for just a few dollars? 

How do they decide exactly what to put in the basket of goods? 

Can't some places have higher cost of living, even in real terms?
gpt
Usually, although these sort of reports never explicitly state that, they have already been adjusted for Purchasing Power Parity. That means that the converted value of the currency is adjusted to prices under the assumption that the same amount of real money should also anywhere on earth buy you the same representative bundle of goods (adjusted for regional idiosyncracies). 
Once it is determined what a representative bundle of goods (usually consisting of food, housing, utilities, etc.) costs in both countries, the values are adjusted and the money a person in the third world survives on per day is then converted to dollars.
To summarize: real income is already adjusted due to purchasing power parity to accurately tell you: a person in the third world has to survive on that amount of money that would be equivalent to an american having to survive on one dollar per day.