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What is Purchasing Power? - Definition & Parity Theory

Instructions:

Choose an answer and hit 'next'. You will receive your score and answers at the end.

question 1 of 3

The U.S. dollar is valued at 0.94 euros. If arbitrage occurs, what will happen to the value of the dollar?

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1. Which of the following is true of purchasing power?

2. In the event that prices don't match, a consumer will look to the lesser price country to buy the product in order to save money. This is known as _____.

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About This Quiz & Worksheet

Have you ever noticed that the same good or service is priced differently in another country? The reason for this difference is best explained by the purchasing power of the given countries' currency. To successfully complete this printable quiz, you will need a solid grasp of economic theory.

Quiz & Worksheet Goals

To further your understanding of purchasing power, you'll be tested on your knowledge of:

  • The techniques used for computing the value of currency
  • How the exchange rate affects the value of goods and services in the world economy
  • How consumers react to different prices in different markets
  • What market forces impact the exchange rate

Skills Practiced

  • Making connections - understand the concept of purchasing power and how it applies to everyday economic activity in international markets
  • Information recall - access the knowledge you've gained regarding purchasing power parity theory
  • Critical thinking - apply relevant concepts to examine information about the value of currency in a different light

Additional Learning

To learn more about this topic, review the accompanying lessons titled What is Purchasing Power? - Definition & Parity Theory. This lesson's objectives include:

  • Defining purchasing power parity theory
  • Identifying how it impacts the price of goods and services in different countries
  • Learning the difference between relative and absolute purchase price parity
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