Respuesta :
Buying a Big mac in El Paso, Texas for $4.00 and the same Big Mac across the border in Juarez, Mexico costs 40 Pesos, with the current exchange rate of 1 Peso=$0.05, we can calculate that the relative cost/relative price of Big Mac between Juarez and El Paso is 1:2 or 0.5
The cost of a Big Mac in El Paso, Texas is US$4, whereas the cost of a Big Mac across the border in Juarez, Mexico is 40 Pesos, or if you convert it to US Dollar with the exchange rate of 1 Peso=US$0.05 then the cost of a Big Mac in Juarez is US$2. Comparing the cost of a Big Mac in both countries, the relative price is calculated as follows:
Big Mac in Juarez : Big Mac in El Paso
2:4
1:2 or 0.5
Relative price is a measurement of one price in comparison to another price. Relative price is a wonderful tool for any company to adjust its output and allocation of resources accordingly.
You didn't complete the question, but I suppose you were trying to ask if you buy a Big Mac in El Paso this morning for $4.00 and that the same Big Mac across the border in Juarez, Mexico costs 40 pesos. What is the relative cost of a big mac between the countries if the current nominal exchange rate based on today's rate is 1 Peso=$0.05
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