This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: Define the price elasticity of demand and show how it is calculated. What will be an ideal ... (Read 35 times)

saliriagwu

  • Hero Member
  • *****
  • Posts: 537
on: Jun 29, 2018
Define the price elasticity of demand and show how it is calculated.
 
  What will be an ideal response?

Question 2

The Big Mac Theory of Exchange Rates tests the accuracy of purchasing power parity theory. In July 2015, The Economist reported that the average price of a Big Mac in the United States was 4.79.
 
  In Switzerland, the average price of a Big Mac at that time was 6.50 Swiss francs. If the exchange rate between the dollar and the Swiss franc was 0.93 Swiss francs per dollar, explain how it would be profitable to buy Big Macs in the United States instead of in Switzerland.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

chloejackso

  • Sr. Member
  • ****
  • Posts: 316
Reply #1 on: Jun 29, 2018
Answer to Question 1

The price elasticity of demand is units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. It equals the absolute value (or magnitude) of the ratio of the percentage change in the quantity demanded to the percentage change in the price. The percentage change in quantity (price) is measured as the change in quantity (price) divided by the average quantity (price).

Answer to Question 2

If a Big Mac costs 6.50 Swiss francs in Switzerland, a person in Switzerland could trade in that 6.50 Swiss francs for 6.99 (6.50 Swiss francs / 0.93 Swiss francs per dollar) and buy 6.99 / 4.79 = 1.46 Big Macs in the United States. Those 1.46 Big Macs could then be sold in Switzerland for 6.50 Swiss francs each, generating 1.46 Big Macs  6.50 Swiss francs per Big Mac = 9.49 Swiss francs. This implies that a person in Switzerland could profit by trading in Swiss francs for dollars, buying Big Macs in the United States, and reselling those Big Macs in Switzerland.


saliriagwu

  • Member
  • Posts: 537
Reply 2 on: Jun 29, 2018
Great answer, keep it coming :)

dawsa925

  • Member
  • Posts: 326
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

« previous next »
 

Did you know?

Fatal fungal infections may be able to resist newer antifungal drugs. Globally, fungal infections are often fatal due to the lack of access to multiple antifungals, which may be required to be utilized in combination. Single antifungals may not be enough to stop a fungal infection from causing the death of a patient.

Did you know?

The strongest synthetic topical retinoid drug available, tazarotene, is used to treat sun-damaged skin, acne, and psoriasis.

Did you know?

Amphetamine poisoning can cause intravascular coagulation, circulatory collapse, rhabdomyolysis, ischemic colitis, acute psychosis, hyperthermia, respiratory distress syndrome, and pericarditis.

Did you know?

There are more bacteria in your mouth than there are people in the world.

Did you know?

There are 20 feet of blood vessels in each square inch of human skin.

Aquatic microclimates: aquatic environments generally show less temperature variation compared to te Aquatic microclimates: aquatic environments generally show less temperature variation compared to te
U.S. Subsurface Coal Mining: Output, Price, and Output per Worker-Hour, 1949–1994 U.S. Subsurface Coal Mining: Output, Price, and Output per Worker-Hour, 1949–1994
Under ideal conditions, a single cell of the bacterium E. coli would divide every 20 minutes to ... Under ideal conditions, a single cell of the bacterium E. coli would divide every 20 minutes to ...
The results of a cytogenetic survey of over 4,000 miscarriages show a wide variation in how often sp The results of a cytogenetic survey of over 4,000 miscarriages show a wide variation in how often sp
Suppose the market supply curve is p = 5Q. If price increases from 10 to 15, the change in ... Suppose the market supply curve is p = 5Q. If price increases from 10 to 15, the change in ...
"The Department of Agriculture came out today with its prediction for food price "The Department of Agriculture came out today with its prediction for food price
Video: Wound Care

For a complete list of videos, visit our video library