Gold is $420 per ounce in Canada and 2100 pesos per ounce in Mexico.According to the purchasing power parity theory,if oil is $20 a barrel in Canada,then it is _________ pesos in Mexico.

Question

Quizplus · Accepted Answer

To solve this problem, we will use the principle of purchasing power parity (PPP), which states that exchange rates should adjust to make the price of an identical basket of goods and services equal across two countries. In this case, we are given the price of gold in Canada and Mexico, and we need to find the price of oil in Mexico, given the price of oil in Canada.

Let P be the price of oil in pesos in Mexico. Then, according to PPP:

$$ \frac{P}{2100} = \frac{20}{420} $$

Cross-multiplying and simplifying, we get:

$$ P = \frac{2100 	imes 20}{420} = 100 $$

Therefore, the price of oil in pesos in Mexico is 100. The correct answer is C).

Gold Is $420 Per Ounce in Canada and 2100 Pesos