2. Suppose that Canada and Nigeria each produce similar cars, which are traded internationally. The price of a car in Canada is 50,000 Canadian Dollars, while the price of the same car in Nigeria is 10,000,000 Nigerian Naira. The market exchange rate between Canadian Dollar and Nigerian Naira is 1 Canadian Dollar = 304.88 Nigerian Naira. a. Show that when using the market exchange rate, the price of the same car seems much cheaper in Nigeria or much more expensive in Canada (1 point). b. Calculate the PPP exchange rate between the two currencies (0.5 point) c. Show that the price of a car is actually the same when using the PPP exchange rate in the two countries. (0.5 point)

2. Suppose that Canada and Nigeria each produce similar cars, which are traded internationally. The price of a car in Canada is 50,000 Canadian Dollars, while the price of the same car in Nigeria is 10,000,000 Nigerian Naira. The market exchange rate between Canadian Dollar and Nigerian Naira is 1 Canadian Dollar = 304.88 Nigerian Naira. a. Show that when using the market exchange rate, the price of the same car seems much cheaper in Nigeria or much more expensive in Canada (1 point). b. Calculate the PPP exchange rate between the two currencies (0.5 point) c. Show that the price of a car is actually the same when using the PPP exchange rate in the two countries. (0.5 point)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2. Suppose that Canada and Nigeria each produce similar cars, which are traded internationally.
The price of a car in Canada is 50,000 Canadian Dollars, while the price of the same car in
Nigeria is 10,000,000 Nigerian Naira. The market exchange rate between Canadian Dollar and
Nigerian Naira is 1 Canadian Dollar = 304.88 Nigerian Naira.
a. Show that when using the market exchange rate, the price of the same car seems much
cheaper in Nigeria or much more expensive in Canada (1 point).
b. Calculate the PPP exchange rate between the two currencies (0.5 point)
c. Show that the price of a car is actually the same when using the PPP exchange rate in the
two countries. (0.5 point)

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