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As Wikipedia states:

In 2008, the World Bank came out with a revised figure of $1.25 at 2005 purchasing-power parity (PPP).

Wikipedia cites Ravallion, Chen, & Sangraula. "Dollar a Day Revisited", 2009.

Of course, there will always be difficulties with measurement.

But conceptually, what precisely is this $\$1.25$ figure meant to capture?

Does it mean the equivalent of someone having to pay for absolutely everything (food, water, shelter, utilities, transport, education, etc.) with just $\$1.25$ a day, in a place where prices are similar to those of the US average in 2005? Or something else?

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Do I understand correctly that you know what "PPP at 2005" means but you wonder what is "covered" by the \$1.25 at PPP2005, and in particular if conceptually these \$1.25 are supposed to pay for non-durable goods only, or to if they are also meant to pay for non-durable goods? – Martin Van der Linden Nov 25 '14 at 19:27
You do understand correctly that I know what "PPP at 2005" means but I wonder what is "covered" by the $1.25 at PPP2005. – Kenny LJ Nov 25 '14 at 22:49
Thanks for clarifying this point. I would have been able to help you with PPP, but not with the "coverage" issue which I would love to hear about from someone else. – Martin Van der Linden Nov 25 '14 at 23:17
Some interesting reading on this topic here:… – Ubiquitous Nov 26 '14 at 8:01

A partial answer : I m not sure what measurement the World Bank would recommend, but I suspect that in practice, the expenses that are taken into account to measure whether one is below or above the 1.25$ threshold vary from one study to another.

For instance in their famous The Economic Lives of the Poor, Banerjee and Duflo write

"From each of these surveys we identified the extremely poor as those living in households where the consumption per capita is less than \$1.08 per person per day, as well as the merely “poor” defined as those who live under \$2.16 a day using the PPP in year 1993 as benchmark.3 The use of consumption, rather than income, is motivated by the better quality of the consumption data in these surveys (Deaton, 2004)."

The use of "consumption per capita" suggest that capital income, such as the benefits one get from owning her own house, would not be taken into account. Because data quality considerations seem to enter the picture, it opens the door to much variation from one study to the other.

The above quote however suggests that at equal data quality, income data would be preferred.

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