What is the absolute parity of purchasing power?

Absolute purchasing power parity is an economic concept that states that the purchasing power of citizens in different countries should be roughly the same. This means that the difference in the prices of some products in two countries can be traced directly to the exchange rate for the currencies of these two countries. If there is a difference, it means that prices in one country are more favorable than in another, allowing buyers to benefit from technology known as arbitration. Another concept related to the absolute parity of purchasing power - known as AppP - is a relative parity of purchasing power that takes into account the level of inflation when comparing prices. As a result, even if their currencies can have different values, the total price for the product should be roughly the same, no matter what nation is sold. This concept is knitted as a "law on one price" and is the basis for the concept of absolute parity of purchasing power.

as an example of how absolute purchasing power works, to imaginee hypothetical situation, where one unit of currency from Earth and equals two currencies from the ground B. The loaf of bread in the country costs 20 units of currency of this country. The Act on one price stipulates that the loaf of bread in the ground B should be 40 units, because the ratio of 40 to 20 would equal the exchange rate of two to one.

With this example, imagine that the loaf of bread in the ground B actually sold a total of 35 units. This would mean that the consumer would gain a better value by buying bread in the country B. Assuming that many consumers would use this inconsistency, bread retailers in country B would realize that they could sell bread for more. This would increase the price of bread in the ground B until the absolute parity of the purchasing power is achieved.

Inflation can also affect prices in different countries, a fact that corresponds to the counterpart of the App, the relative parity of purchasing power. When considering the concept of purchasing power parity, there may be certain factors that can throw prices from balance from what can be expected.For example, competition between sellers may be limited in some countries. In addition, some trade restrictions, such as tariffs, can also affect App.