Question

If purchasing-power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 25 Thai baht per dollar, what is the price of rice in Thailand?

Answer 1

The price of rice in the Thailand is likely to be 250 Thai baht per bushel.

Step-by-step explanation:

According to the purchasing power parity theory, the exchange rate between two countries is based on a basket of goods. The nominal exchange rate is the ratio of prices of goods in two different countries.

The price of rice in the US is $10 per bushel.

The nominal exchange rate between US dollars and Thai baht is 25 Thai baht/$.

The nominal exchange rate =
`(price\ of\ rice\ in\ Thailand)/(price\ of\ rice\ in\ US)`

25 Thai baht/$=
`(price\ of\ rice\ in\ Thailand)/(\$10)`

Price of rice in Thailand =
`\$10\ *\ 25`

Price of rice in Thailand = $250