7. CRITICISMS FOR PPP
Comparison of prices
without regard to
quality is unrealistic
Price index number
includes the price of all
commodities and services
including those which are
not internationally
traded
Cost of
Transportation
is ignored
No trade barriers-
is an unrealistic
assumption
Ignores the impact
of changes in the
exchange rates on
the prices
Doesn’t explain the
demand for supply
in foreign exchange
No explanation of
short-term
changes in
exchange rates
Goes conflicting
to general
experience