Understanding Purchasing Power Parity (PPP)

In an open economy, the concept of parity conditions is fundamental to understanding how exchange rates are determined. One of the critical parity conditions is the Purchasing Power Parity (PPP), which asserts that in the absence of transportation costs and barriers, identical goods should have the same price in different currencies. For example, if a pair of shoes costs $100 in the United States and the equivalent in Euros is €90 at the current exchange rate of 1.11 dollars per Euro, this can influence trade and investment decisions between the two economies.

Given this context, which of the following statements is TRUE concerning Purchasing Power Parity?