Scenario: The price of a given basket of goods in Country 1 is 10 karls. The price of the same basket of goods in Country 2 is 25 ritz and is $2 in the United States. Country 1 has an income per capita of 3,200 karls, and Country 2 has an income per capita of 5,500 ritz.
-Refer to the scenario above.Which of the following is true?
A) The PPP-adjusted income per capita in Country 1 is $3,500.
B) The PPP-adjusted income per capita in Country 2 is $5,800.
C) The PPP-adjusted income per capita in Country 1 is higher than that in Country 2.
D) The PPP-adjusted income per capita in Country 1 is lower than that in Country 2.

Question

Quizplus · Accepted Answer

DTo calculate the PPP-adjusted income per capita, we first need to find the exchange rate equivalent in terms of the basket of goods. For Country 1, 10 karls = $2, so 1 karl = $0.20. For Country 2, 25 ritz = $2, so 1 ritz = $0.08. - For Country 1: 3,200 karls * $0.20/karl = $640.- For Country 2: 5,500 ritz * $0.08/ritz = $440.Thus, the PPP-adjusted income per capita in Country 1 is higher than that in Country 2, making choices C and D correct. Choices A and B are incorrect because the calculated PPP-adjusted incomes do not match the values provided.

Scenario: the Price of a Given Basket of Goods in Country