Explore BrainMass
Share

Explore BrainMass

    Exchange rate for traded good - "Law of One Price"

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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?

    © BrainMass Inc. brainmass.com October 9, 2019, 4:11 pm ad1c9bdddf
    https://brainmass.com/economics/exchange-rates/exchange-rate-traded-good-law-one-price-24831

    Attachments

    Solution Preview

    B. Calculate the market exchange rate between the currencies of the two countries.

    Computers are traded internationally
    Price in Richland's local currency= 2
    Price in Poorland's Local ...

    Solution Summary

    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.

    $2.19