Consider the following two cases and explain the validity of the theory of purchasing power parity based on these situations. In the first case, suppose there are trade barriers and an imperfectly...


Consider the following two cases and explain the validity of the theory of purchasing power parity based on these situations. In the first case, suppose there are trade barriers and an imperfectly competitive market structure in an economy for a product. Explain whether the law of one price holds good here. In the second case, suppose there is no product differentiation, trade barriers, and the market is perfectly competitive for a product. Would the law of one price be applicable in this case? If not, what factor will you attribute to the different prices in different markets for the same product?

Nov 26, 2021
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