If a pound of coffee beans costs 85 pesos in Mexico City and 10 pesos = 35 rupees, then the same pound of coffee should cost _________ rupees in New Delhi, under the condition of the law of one price.

Question

Quizplus · Accepted Answer

The law of one price suggests that in the absence of transaction costs and assuming perfect market conditions, identical goods should have the same price when expressed in the same currency. To convert the cost from pesos to rupees, we use the given exchange rate: 10 pesos = 35 rupees. Therefore, 1 peso = 3.5 rupees. For a pound of coffee beans costing 85 pesos, the equivalent cost in rupees is 85 pesos * 3.5 rupees/peso = 297.5 rupees.

If a Pound of Coffee Beans Costs 85 Pesos in Mexico