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Definition

Relative Form of PPP

The Relative form of PPP accounts for the possibility of market imperfections such as transportation costs, tariffs, and quotas. This version acknowledges that because of these market imperfections, prices of the same basket of products in different countries will not necessarily be the same when measured in a common currency. It does state, however, that the rate of change in the prices of the baskets should be some what similar when measured in common currency , as long as the transportation costs and trade barriers are unchanged.

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