Purchasing Power Parity (PPP)

An economic theory which states that the price of a good or service in one nation should be the same as the exchange-rate-adjusted price of the same good or service in another nation.

For example, a pack of gum that sells for CD$1.50 in a Canadian city should cost U.S.$1.00 in a U.S. city when the exchange rate between Canada and the U.S. is 1.50 USD/CDN. (Both packs of gum cost U.S.$1.00.)