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 above options are limitations of the purchasing-power parity. When certain goods are not easily tradeable, it becomes challenging to calculate their prices accurately across different countries. Similarly, when goods are not perfect substitutes, the purchasing-power parity may not hold. Finally, if consumer preferences change over time, the purchasing-power parity may also become less accurate as it assumes a fixed basket of goods and services.

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