Question

According to The Economist​, in early 2004 the average price of a tall​ latté in Starbucks in the United States was​ $2.80. In the countries that use the​ euro, the average price was 2.93 euros. Because the exchange rate at this time was 0.79 euro per​ dollar, the dollar price of​ lattés in the euro area was​ $3.70.At what exchange rate between the dollar and the euro would a latté cost the same in the euro area as it did in the United States?

Answer 1

Answer:

• At an exchange rate of 1.05 euro per dollar the cost of a latté would be the same in the euro area as it did in the United States.

Explanation:

The contidion is that the two prices are equal:

• exchange rate × $2.8 = Euros 2.93

Solve for the exchange rate:

• exchange rate = Euros2.93/$2.80 = Euro 1.05/$

Thus, at an exchange rate of 1.05 euro per dollar the cost of a latté would be the same in the euro area as it did in the United States.