Suppose that a Ford costs $20 000 in Canada and £10 000 in Britain.Purchasing power parity is an exchange rate of £2 per dollar.

Question

Quizplus · Accepted Answer

To check purchasing power parity, we need to convert the prices of both countries into the same currency. 
Price of Ford in Canada = $20,000
Price of Ford in Britain = £10,000
Using the given exchange rate of £2 per dollar, we can convert the price in Britain to dollars: 
£10,000 * (1/£2 per $1) = $5,000
Therefore, the Ford costs $20,000 in Canada and $5,000 in Britain after converting the currencies. This shows that purchasing power parity does not hold, as the prices are not the same after converting to the same currency.

Suppose That a Ford Costs $20 000 in Canada and £10