Depict the purchasing power parity, the absolute and relative both versions. What causes the deviations by purchasing power parity?
The absolute version of purchasing power parity (PPP):
S = P$/P£.
The relative version is:
e = ∏$ - ∏£.
PPP can be violated if there are barriers to international trade or if people in distinct countries have distinct consumption taste. PPP is the law of one price applied on a standard consumption basket.