The dollar price of the cell phone in Japan is $177.69.
Suppose that the cell phone sells for $199.99 in the United States, 18,000 yen in Japan, and 180 pounds in Great Britain. The notion that a particular type of cell phone should sell for the same dollar price in the United States as it does in, say, Japan and Great Britain, makes sense if you think about supply and demand in world markets. While this theory naturally relies on certain assumptions (such as negligible transportation costs, that goods and services must be “tradable,” and that a good in one country does not differ substantially from the same good in another country) it is intuitively appealing. Economists refer to purchasing power parity to describe why, over time, the dollar price of a good in one country should equal its dollar price in all other countries.
