Suppose a lobster supper in Maine costs fewer dollars than a Lobster supper in Paris, France. Explain why this is inconsistent with purchasing-power parity and explain why the inconsistency may exist
According to purchasing-power parity, a dollar should buy the same amount of goods everywhere in the world. The inconsistency may exist because lobsters have to be transported to Paris. Price differences can also persist because goods are not perfect substitutes. While eating lobster gazing at the Maine coastline may be a pleasurable experience, eating well-prepared lobster in a fancy French restaurant may be an experience people would be willing to pay more for.
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