According to the theory of purchasing power parity, why should identical goods have the same price in different locations?
a. To prevent price gouging, international law mandates that identical goods must be sold for the same currency-adjusted price across all locations.
b. If the goods were two different prices, it would cause an increase in supply of the good at the low-price location and a decrease in supply of the good at the high-price location, which would cause the prices in each location to converge to the same price.
c. If the goods were two different prices, it would cause an increase in supply of the good at the high-price location and a decrease in supply of the good at the low-price location, which would cause the prices in each location to converge to the same price.
d. If the goods were two different prices, it would cause a decrease in demand of the good at the low-price location and an increase in demand of the good at the high-price location, which would cause the prices in each location to converge to the same price.|
e. If the good were two different prices, it would cause an increase in demand of the good solely at the low-price location until that good reached the sameprice as the good in the high-price location.
Ans: c. If the goods were two different prices, it would cause an increase in supply of the good at the high-price location and a decrease in supply of the good at the low-price location, which would cause the prices in each location to converge to the same price.
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