Refer to exhibit 34-9. for country X, what is the opportunity cost of (good B)th
ID: 1197537 • Letter: R
Question
Refer to exhibit 34-9. for country X, what is the opportunity cost of (good B)that would produce one unit of good A? Refer to exhibit 34-9. for the country Y, what id the opportunity cost of (good A) that would produce one unit of good B? Suppose that on Monday, a Big mac cost dollar 3,00 in the United stated and 310 Janpanese yen in japan. on Monday, the exchange rate wasS_1 = 85 yen. According to the purchasing power parity theory, the yen was-- by approximately--percent. If the Japanese yen trades dollar 1 =98 yen,a honda that sells for dollar29,000 in the U.S. be worth approximately how many yen?Explanation / Answer
Ans 1. Opportunity cost of commodity A is the amount of the other commodity B that has to be given up in order to get one additional unit of commodity A. Country X can produce 300 units of A and zero units of B or 0 units of A and 30 units of B that means 300 A = 30 B implies that 1 A = 30/300 = 1/10 B i.e to produce 1 unit of good A you have to give up 1/10 th of good B.
Or 30 B = 300A implies that 1B = 10 A i.e to produce 1 unit of good B you have to give up 10 units of good A.
Ans 2. Similarly, country Y can produce 60 units of good A and zero units of good B or 90 units of good B and zero units of good A.
So 60 A = 90 B implies that 1 A = 90/60 = 3/2 = 1.5 B i.e opportunity cost of A is 1.5 B that is you have to give up 1.5 B to produce 1 unit of good A.
Or 90 B = 60 A implies that 1B = 60/90 = 2/3 = 0.6666 =0.67 (approx) the opportunity cost of good B is 0.67 A that is to produce 1 unit of good B you have to give up 0.67 unit of good A.
Ans 3. On Monday one Big Mac costs 3 dollars in the US and 310 yen in Japan. According to the Purchasing Power Parity theory 3 dollars = 310 yen implies that 1 dollar = 310/3 = 103.33 (taking two decimal places) yen
But the exchange rate was 1 dollar = 85 yen. So the value of yen has decreased means yen has depreciated. To find out the percentage of depreciation we have to proceed as follows:
((103.33 - 85)/85)*100 = (18.33/85) * 100 = (0.21568) * 100 = 21. 568 = 21. 57 %
So, the yen has depreciated by 21.57%.
Ans 4. The exchange rate between dollar and yen is given as 1 dollar = 98 yen that means the value of the Honda that sells for 29000 dollars in the US would be worth = 29000 * 98 = 2,842,000 dollars