Assume that the average consumer in Mexico and the average consumer in the United States buy the quantities and pay the prices indicated in the following table:

a. Compute US consumption per person in dollars.

b. Compute Mexican consumption per person in pesos.

c. Suppose that 1 dollar is worth 10 pesos. Compute Mexico's consumption per person in dollars. This method of comparing consumption in Mexico to consumption in the United States uses market exchange rates.

d. Using the purchasing power parity method and US prices, compute Mexican consumption per person 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?

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Food Price Quantity Transportation Services Price Quantity Mexico 5 pesos 400 20 pesos 200 United States $1 1,000 $2 2,000