Suppose a pound of dry roasted coffee beans cost $3 in the United States and 6 pounds in England. The law of one price would predict that the exchange rate in the long- run is:

Question

Quizplus · Accepted Answer

The law of one price suggests that identical goods should sell for the same price in different countries when prices are expressed in a common currency. If coffee costs $3 in the US and 6 pounds in England, the exchange rate should be $1 = 2 pounds to equalize the price.

Suppose a Pound of Dry Roasted Coffee Beans Cost $3