A bottle of German wine costs €21 (euros)in Berlin.According to the purchasing power parity theory,what would the bottle sell for in New York if it costs the New York company $1.25 per bottle to transport the wine to the United States? Assume the exchange rate is $1.32 per euro.

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The purchasing power parity (PPP) theory suggests that in the absence of transportation costs and other barriers, identical goods should have the same price in different countries when prices are expressed in a common currency. The cost of the wine in euros is €21. With an exchange rate of $1.32 per euro, the cost in dollars before transportation is 21 * $1.32 = $27.72. Adding the transportation cost of $1.25 gives a total of $27.72 + $1.25 = $28.97.

A Bottle of German Wine Costs €21 (Euros)in Berlin