Question

Which of the following products would likely be the least accurate if used to calculate purchasing-power parity?
a. diamonds
b. dental services
c. automobiles
d. gold

Answer 1

Purchasing-power parity (PPP) measures the relative value of currencies based on the cost of a basket of goods and services. To achieve accurate comparisons, the goods and services used should be widely available and have consistent pricing across different countries.

Among the options provided:

a. **Diamonds** - While they can vary in price based on quality and market conditions, they are a luxury good and not a necessity, which can lead to significant price discrepancies.

b. **Dental services** - These vary widely by region and are influenced by local labor costs, making them less comparable across countries.

c. **Automobiles** - While they are substantial expenses with some level of international pricing, they can also be influenced by tariffs, local regulations, and preferences, which can complicate comparisons.

d. **Gold** - Generally has a fairly consistent price in international markets, influenced largely by global supply and demand factors.

Given this analysis, **b. dental services** would likely be the least accurate for calculating purchasing-power parity. They are services that can vary significantly based on local markets and regulations, making them a poor candidate for consistent international comparisons.