Purchasing-Power Parity Theory Does Not Hold at All Times Because

question 19

Multiple Choice

Purchasing-power parity theory does not hold at all times because

• A)many goods are not easily transported.
• B)the same goods produced in different countries may be imperfect substitutes for each other.
• C)Both a and b are correct.
• D)prices are different across countries.

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Definitions:

World Price

The global market cost of a good or service, shaped by worldwide demand and supply factors.

Tariff

A tariff is a tax imposed on imported goods and services, intended to make foreign products more expensive and protect domestic industries.

Import Quota

A government-imposed limit on the quantity of a specific good that can be imported into the country over a set period of time.

Tariff

A tax imposed by a government on imports or exports of goods to regulate trade and protect domestic industries.