What three real-world complications keep purchasing power parity ...

[bio_gurl]

What three real-world complications keep purchasing power parity from being a complete explanation of exchange rate fluctuations in the long run? Explain.
 
  What will be an ideal response?

Question 2

Refer to Figure 4-5. What is the area that represents the producer surplus after the imposition of the ceiling?
 
  A) D + F + G B) F C) F + G D) A + B + D + F + G

[livaneabi]

Answer to Question 1

First, not all products are traded internationally. As a result, there is no way to take advantage of profit opportunities to buy in one country and sell in another country, so exchange rates will not reflect exactly the relative purchasing powers of currencies. Secondly, products and consumer preferences for products vary across countries. As a result, consumers in one country might be willing to pay different prices for products than consumers in another country, and exchange rates might not adjust for that difference in the long run. Finally, countries sometimes impose barriers to trade. If there are barriers to trade, it may not be possible to take advantage of profit opportunities to buy in one country and sell in another country, so, again, exchange rates will not reflect exactly the relative purchasing powers of currencies.

Answer to Question 2

B

[bio_gurl]

YES! Correct, THANKS for helping me on my review

[chereeb]

Excellent