Quantity of imports 200 Foreign currency price of imports 20 Exchange rate (d/f) 1.50 Future Exchange rate (d/f) 1.20 a) What is the foreign currency value of imports if the elasticity of demand is 0.5? b) What is the domestic currency value of imports if the elasticity of demand is -0.5? c) What is the foreign currency value of imports if the elasticity of demand is 2.5?
Quantity of imports 200
Foreign currency
Exchange rate (d/f) 1.50
Future Exchange rate (d/f) 1.20
a) What is the foreign currency value of imports if the elasticity of demand is 0.5?
b) What is the domestic currency value of imports if the elasticity of demand is -0.5?
c) What is the foreign currency value of imports if the elasticity of demand is 2.5?
The domestic-currency price(P) and the foreign-currency price(P) of imports(M) are different because of different exchange-rates between the countries. The foreign price(P) is given as 20 and the domestic price(P) of imports will be current exchange-rate i.e. 1.50 multiplied by foreign-currency price(P). So, domestic-currency price(P) of imports(M) will be $30.
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