Assume that the average consumer in Mexico and the aver- age consumer in the United States buy the quantities and pay the prices indicated in the following table:
Food Transportation Services
|
|
Price
|
Quantity
|
Price
|
Quantity
|
|
Mexico
|
5 pesos
|
400
|
20 pesos
|
200
|
|
United
|
$1
|
1,000
|
$2
|
2,000
|
States
a. Compute U.S. consumption per capita in dollars.
b. Compute Mexican consumption per capita in pesos.
c. Suppose that 1 dollar is worth 10 pesos. Compute Mexico's consumption per capita in dollars.
d. Using the purchasing power parity method and U.S. prices, compute Mexican consumption per capita in dollars.
e. Under each method, how much lower is the standard of living in Mexico than in the United States? Does the choice of method make a difference?