Which of the following items may demonstrate limitations of the purchasing-power parity?
A)when certain goods are not easily tradeable
B)when goods are not perfect substitutes
C)consumer preferences may change over time
D)all of the above.

Question

Quizplus · Accepted Answer

All of the options listed can demonstrate limitations of the purchasing-power parity. When certain goods are not easily tradeable, their prices may be affected by local supply and demand factors, which can differ from country to country. Similarly, if goods are not perfect substitutes, differences in quality can affect their prices, making it difficult to compare purchasing power. Finally, changes in consumer preferences can affect the basket of goods and services used to calculate the PPP exchange rate, potentially skewing the results.

Which of the Following Items May Demonstrate Limitations of the Purchasing-Power