Suppose that the current Canadian dollar (CAD) to U.S. dollar exchange rate is $0.85 CAD…

Question:

Suppose that the current Canadian dollar (CAD) to U.S. dollar exchange rate is $0.85 CAD = $1 US and that the U.S. dollar price of an Apple iPhone is $300. What is the Canadian dollar price of an iPhone? Next, suppose that the CAD to U.S. dollar exchange rate moves to $0.96 CAD = $1 US. What is the new Canadian dollar price of an iPhone? Other things equal, would you expect Canada to import more or fewer iPhones at the new exchange rate?

Answer:

Step: 1 of 3

It is given that,
$1=$0.85CAD
U.S. dollar price of a Apple iPhone = $300
The Canadian dollar price of an Apple iPhone is $255CAD.

Step: 2 of 3

New exchange rate,
$1=$0.96CAD
U.S. dollar price of a Apple iPhone = $300
The new Canadian dollar price of an Apple iPhone is $288CAD.

Step: 3 of 3

The Canadian dollar price of the iPhone has increased due to the change in the exchange rate. At a higher price, fewer iPhones would be demanded by Canadians.
Therefore, Canada would import fewer iPhones at the new exchange rate.

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