suppose that there are only two goods produced in the world: computers,
which are traded internationally and ice cream which is not. The
following table shows in two countries:
Computer Ice cream Price of Price of
Produced Per capita Produced Per capita Computers in Local
Currency ice cream
Country
Richland 12 4 2 4
Poorland 3 1 1 1
B. Calculate the market exchange rate between the currencies of the two
countries.
C. What is the ratio of GDP per capita in Rich land to GDP per Capita in
poorland, using Market exchange rate?
Economics Homework Solutions
#24831
Exchange rate for traded good according to the "Law of One Price": Suppose that there are only two goods produced in the world: computers, which are traded internationally and ice cream which is not. B. Calculate the market exchange rate between the currencies of the two countries. C. What is the ratio of GDP per capita in Rich land to GDP per Capita in poorland, using Market exchange rate?
Suppose that there are only two goods produced in the world: computers, which are traded internationally and ice cream which is not. The following table shows in two countries:
Computer Ice cream Price of Price of
Produced Per capita Produced Per capita Computers in Local Currency ice cream
Country
Richland 12 4 2 4
Poorland 3 1 1 1
B. Calculate the market exchange rate between the currencies of the two countries.
C. What is the ratio of GDP per capita in Rich land to GDP per Capita in poorland, using Market exchange rate?
The solution calculates market exchange rate between the currencies of the two countries and the ratio of GDP per capita in Rich land to GDP per Capita in poorland, using Market exchange rate.
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