6. Purchasing power parity The law of one price The theory of purchasing power parity...
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6. Purchasing power parity The law of one price The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A pair of headphones sells for $40.11 in the United States. The exchange rate between the U.S. dollar and the Swiss franc (SFr) is $0.8223 per Swiss franc. Assuming that PPP holds true, how much does the same pair of headphones cost in Switzerland? SFr 58.54 SFr 48.78 O SFr 51.22 SFr 43.90 Suppose the price of the pair of headphones in Switzerland was actually SFr 39.02. Assuming no transaction costs, transportation costs, or import restrictions, PPP predicts that the demand would in Switzerland
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