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Does the existence of non-tradable goods allow for deviations from Purchasing Power Parity?
Answer: Yes the continuation of non-tradable goods permits deviations from Purchasing Power Parity (PPP). This is for the reason that the price of a non-tradable good is determined entirely by its domestic supply and demand curves and in turn fluctuations in demand and supply for these goods will affect the price level. Illustrations include haircuts, housing, services, and so on.
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