Suppose the price of gold is $300 per ounce in the United States and 2,400 pesos per ounce in Mexico. If purchasing power parity holds and if the price of oil is $25 per barrel in the United States, the price of oil is ________ pesos per barrel in Mexico.

Question

Quizplus · Accepted Answer

If purchasing power parity holds, then the relative value of the dollar and peso will be the same when buying a tradable commodity like oil or gold. Thus, since 2,400 pesos/ $300 = 8 pesos per dollar, the price of oil in Mexico must be 8 × 25 = 200 pesos per barrel.

Suppose the Price of Gold Is $300 Per Ounce in the United