Question

According to the purchasing power parity all goods should costs the same in every country. Do you think a haircut costs the same as in the United States as it does in England?

Answer 1

I don’t think a haircut will costs the same as in the U.S. as it does in England. The purchasing power parity theory states that the exchange rate between currencies of two nations must be equal to the ratio of the countries' price levels. However the non-traded goods such as labor services (e.g. haircut), domestic transportation (e.g. bus and train services) and construction (e.g. homebuilding) could be priced differently in the two nations.