If P = Domestic Prices,P* = Foreign Prices,and E Is

question 38

Multiple Choice

If P = domestic prices,P* = foreign prices,and e is the nominal exchange rate,which of the following is implied by purchasing-power parity?

• A)P = e/P*
• B)1 = e/P*
• C)e = P*/P
• D)None of the above is correct.

---

Definitions:

Marginal Cost

The cost addition of manufacturing an extra item of a particular product, emphasizing its role in decision-making for production levels.

Purely Competitive

A market structure characterized by many buyers and sellers, where each seller has little to no influence on the market price.

Long-run Equilibrium

A state in which economic forces such as supply and demand are balanced, and all inputs and outputs in the economy are fully adjusted to these conditions over a long period.

Pure Competition

A theoretical market structure with a large number of sellers and buyers, identical products, and no barriers to market entry or exit, promoting efficient pricing.