If purchasing power parity exists and the exchange rate is 1.50 U.S.dollars per British pound, than a latte that has a price of $4.00 in San Jose, California, has a price of ________ in London, England.

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Purchasing power parity implies that the price of goods should be the same in different countries when expressed in a common currency. If a latte costs $4.00 in the U.S. and the exchange rate is 1.50 USD/GBP, then the price in pounds is $4.00 / 1.50 = 2.67 pounds.

If Purchasing Power Parity Exists and the Exchange Rate Is