Question

Value of an internationally traded product has different components with different magnitude. Would you please take a product that is produced in two different countries (e.g., USA and Canada), and discuss how the value of a product or service can be converted tin common currency without undervaluing or underestimating the product or service. Thanks.

Answer 1

Prices of goods and services are different from one country to another country.The price of a product in abroad can be very different when you can compare with your own land.If we observe ,prices are low in poor countries and high in rich countries.This is called as" Penn effect" It can compare the incomes of the countries ,living standards, purchasing powers, in the country.Due to price differences across countries,comparing incomed using the market currency exchange can give us an inaccurate picture .Instead we can use purchasing power to know exactly.It is called as purchasing power party (PPP) which helps us to measure" the total amount of goods and services which a country can buy in another country"

The international comparision of PPP is based on massive price collection exercise.Here we can collect the datas and analyse and compare the world pricing and the exchange of the currency.Here the WB also involves in comparing the poverty levels of the countries andstandards of living as it is the basic source of economis data .

For example the market exchange rates converts , between the countries as a US dollar able to purchace the amount of goods in canada.Her we can use PPP when we convert the currency in to the Canada currency. Measuring economic activity is a complex task since 'the economy' is ac complex system with number of moving parts. A common way to deal with this is to focus on aggregate indicators, such as th total national output .

one option is that only to compare the common currency as like the USA dollar,but because market exchanges rates do not always reflect the different price levels between the countries. Taking US and Canada as a reference contries the price level shown for a country for US dollars you can buy twice as many goods and services in that country than in the US.  These two countries, two different currency allow for different comparison. The market exchange rate tells you how many units of currency from Canada you can buy with the unit of currnency of USA. There are good reasons why the market exchange rates between the 2 currrencies should reflect the releative price levels between the two economies. Imagine that one apple costs $1 in the US and one CA$ in te Canada. So an American person with an apple would have an insentive to sell the apple in canada and making a profit. People would jump at such a oppurtunities. This logic assumes however goods and services can be tradable internationally.