. Purchasing power parity The law of one price The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A television sells for $889.35 in the United States. The exchange rate between the U.S. dollar and the Swiss franc (SFr) is $0.8223 per Swiss franc.

Assuming that PPP holds true, how much does the same television cost in Switzerland? SFr 1,027.46 SFr 1,243.77 SFr 1,081.54 SFr 919.31 Suppose the price of the television in Switzerland was actually SFr 865.23. Assuming no transaction costs, transportation costs, or import restrictions, PPP predicts that the demand would increase/decrease in Switzerland.