If purchasing-power parity held, if a Big Mac costs $2 in the United States, and if 10 Mexican pesos trade for $1 dollar, then a Big Mac in Cancun, Mexico, should cost:
A) 2 pesos.
B) 5 pesos.
C) 10 pesos.
D) 20 pesos.

Question

Quizplus · Accepted Answer

Purchasing-power parity (PPP) implies that the same goods should cost the same amount in different countries when prices are converted into a common currency. If a Big Mac costs $2 in the United States and the exchange rate is 10 Mexican pesos to $1, then a Big Mac in Mexico should cost 2 * 10 = 20 pesos to maintain PPP.

If Purchasing-Power Parity Held, If a Big Mac Costs $2