We can expect deviations from absolute PPP because of:
A) different bundles of goods across countries
B) quotas and tariffs
C) transactions costs.
D) All of the above are correct

Question

Quizplus · Accepted Answer

All of the factors listed: different bundles of goods across countries, quotas and tariffs, and transactions costs can all lead to deviations from absolute PPP. Different bundles of goods means that different countries will have different prices for different goods, leading to deviations from PPP. Quotas and tariffs can create price differences for the same goods in different countries, again leading to deviations from PPP. Finally, transactions costs can affect the ability of goods to flow freely between countries, which can also lead to deviations from PPP.

We Can Expect Deviations from Absolute PPP Because Of