llocation of resources would result in a greater benefit to the nation as a whole.
             Exchange rates are very important in determining whether Harley-Davidson can compete effectively with its Japanese rivals. If the U.S. dollar appreciates relative to the Japanese Yen, then the competitiveness of U.S. motorcycles is reduced since it is now possible to import Japanese motorcycles at a lower price. This loss of competitiveness is the typical effect of a domestic currency appreciation: imported goods become cheaper than domestic goods. The purchasing power parity theory states that the exchange rate between any two countries may be expected to reflect differences in price levels in the two countries. This does not have to be necessarily true in this case because the two goods, American and Japanese motorcycles, are different: they are substitutes, but not perfect substitutes. With lower prices Japanese producers can increase
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