Question

g Suppose a carton of hockey pucks sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey pucks in the United States? g

Answer 1

Answer:

$74.55

Explanation:

Purchasing power parity (PPP) is a term that measures prices in different countries using a specific good.

Now, the Exchange rate of currency 1 to currency 2, S is given as:

$S=\dfrac{P_1}{P_2}$

$P_1$=Cost of good X in currency 1

$P_2$=Cost of good X in currency 2

$1 = CAD $ 0.71

​$0.71=\dfrac{P_1}{105}\\P_1 =105 X 0.71\\P_1=\ 74.55$

If PPP holds, the pucks should cost the same in both markets.