If $30 can buy a dozen roses in the United States, and purchasing power parity h

Question

If $30 can buy a dozen roses in the United States, and purchasing power parity holds, then $30 should also be enough to buy a dozen roses in Turkey—or, more specifically, the Turkish lira equivalent of $30 should be sufficient to buy a dozen roses in Turkey. If purchasing power parity does not hold between the two nations, how might you account for the discrepancy? Select all that apply. A. identical roses B. non-identical roses C. transportation costs D. roses are not perfectly tradable E. prices may not have fully adjusted

Explanation / Answer

B. Non Identical roses because in this case people will be wiling to pay higher amount for more beautiful or more fragnant roses.

C. Transportation Costs Trasnportation cost in one country may be more than other.

D. Roses are not perfectly tradable therefore, country will excess demand may charge a higher price as compared ot country with excess suppl.

E. Prices may not have fully adjusted because it adjusts in the long run and we might be talking of the short run.

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