The theory of purchasing power parity (PPP) states that in the long-run exchange

Question

The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A printer sells for $ 75.77 in the United States. The exchange rate between the U.S. dollar and the Swiss franc(SFr) is $0.8053 per Swiss franc. Assuming that PPP holds true, how much does the same printer cost in Switzerland? Suppose the price of the printer in Switzerland and was actually SFr 75.27. Assuming no transaction costs, transportation costs, or import restrictions, PPP predicts that the demand would in Switzerland.

Explanation / Answer

Answer : Sfr 94.09

Suppose price in the switzerland is 75.27 then demand will increses because of lower cost in the switzerland for the priner

Working Notes For Above answer

priner sale for $ 75.75 in the United Satets

exchange rate is 0.8053 per swiss franc

So one get 0.8053 against per swiss franc

so price in switzerland will be as follow

x = 75.77//0.8053

x = 94.089

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.