Which of the following best describes purchasing power parity?

Purchasing power parity (PPP) is fundamentally about comparing the purchasing power of different currencies. This concept posits that in the absence of transportation costs and other trade barriers, identical goods should have the same price when expressed in a common currency. Option B aptly encapsulates this definition by highlighting the comparison between the purchasing power of various currencies.

When evaluating purchasing power parity, economists typically analyze how much of a currency is needed to purchase the same basket of goods in different countries. This reflects relative price levels and allows for a more accurate comparison of standards of living across nations. Thus, option B correctly identifies the essence of purchasing power parity in economic discussions.