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ID: 1145589 • Letter: N
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ne. E suggested sites- YouTube home G Google y . Horne e, Send Scores The price of an iPhone 5s in the U.S. is $399. The table below lists the income l per capita and prices of the same iPhone in four dafferent countries in 2014 in their own Country Income per capiace country 1 15,600 Country 234 500 Country 3 22.670 Country 420,000 1) Refer to the scenario above. What is the purchasing power parity-based exchange rate between the two currencies? A) 2 5 units of Country I's currency for $1 B) 0.4 units of Country I's currency for $1 C) 1 unit of Country I's currency for $2.50 D) 1.2 units of Country 1's currency for $ Answer 2) Refer tothe sceneno above The income per capita of Country 2 = PPP-ad usted dollars s A) $5,985 B) $6.834 C) $12.655 D) 54,236 Answer A) Coustry 1 B) Country2 C) Country 3Explanation / Answer
2)
The purchasing power parity measures the relative power of the consumers in terms of a country’s currency for purchasing a commodity, given that the price of the commodity is same throughout the countries.
Here, we will assume that the concerned product, the iPhone 5s, is sold at the same price throughout the globe.
So, for country 2, we can say that the price of an iPhone 5s is same as the dollar value of the same for U.S. That is, we can write,
Price of iPhone 5s in country 2 = Price of iPhone in U.S.
So, 1 unit of country 2’s currency is same as $0.17 of U.S.
Now, the per capita income of an average person in country 2 is 34,500 units. So, if we convert this income using the above conversion rate, we’ll get the person’s income in terms of U.S. dollars, and that is known as purchasing power parity.
So, the PPP-adjusted income per capita in country 2 would be,
34,500 * $0.17 = $5,985.
Thus, option A the correct option.
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