Scenario: The price of an iPhone 5s in the United States is $399. The table below lists the income per capita and the price of the same iPhone in the domestic currencies of four different countries in 2014.

-Refer to the scenario above.What is the PPP-based exchange rate between the currency of Country 1 and the U.S.dollar?
A) 2.5 units of Country 1's currency for $1
B) 0.4 units of Country 1's currency for $1
C) 1 unit of Country 1's currency for $2.50
D) 1.2 units of Country 1's currency for $1

Question

Scenario: The price of an iPhone 5s in the United States is $399. The table below lists the income per capita and the price of the same iPhone in the domestic currencies of four different countries in 2014.
 
-Refer to the scenario above.What is the PPP-based exchange rate between the currency of Country 1 and the U.S.dollar?
A) 2.5 units of Country 1's currency for $1 
B) 0.4 units of Country 1's currency for $1 
C) 1 unit of Country 1's currency for $2.50 
D) 1.2 units of Country 1's currency for $1

Quizplus · Accepted Answer

The PPP-based exchange rate is determined by comparing the cost of a basket of goods in two different countries. If the scenario suggests that the same basket of goods costs 2.5 times as much in Country 1's currency as it does in U.S. dollars, then the PPP-based exchange rate would be 2.5 units of Country 1's currency for $1, to equalize the purchasing power in both currencies.

Scenario: the Price of an IPhone 5s in the United