Question
In Munich, a bratwurst costs 5 euros; a hot dog costs $5 at Boston's Fenway Park. a. [2 points] At an exchange rate of $1.20/euro,
In Munich, a bratwurst costs 5 euros; a hot dog costs $5 at Boston's Fenway Park. a. [2 points] At an exchange rate of $1.20/euro, what is the price of a bratwurst in terms of a hot dog? b. [4 points] All else equal, how does this relative price change if the dollar appreciates to $0.90/euro? Compared with the initial situation, has a hot dog become more or less expensive relative to a bratwurst? If consumers in the U.S. and Germany view a bratwurst and a hot dog as perfect substitutes, what would happen to the demand for the hot dog after this relative price change?
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