A Big Mac costs 400 yen in Japan and 50 pesos in Mexico.If the actual exchange rate is 1 yen = 8 pesos,we can conclude that in this case

Question

Quizplus · Accepted Answer

The law of one price states that identical goods should have the same price in different countries, taking into account the exchange rate. In this case, a Big Mac costs 400 yen in Japan and 50 pesos in Mexico. However, according to the exchange rate of 1 yen = 8 pesos, a Big Mac in Japan should cost 3,200 pesos. Therefore, the law of one price does not hold in this case and the numbers are not consistent with the theory of purchasing power parity.

A Big Mac Costs 400 Yen in Japan and 50