Question
In the United States and Russia, people consume 2 goods: cars and bread. In the United States the annual expenditure on cars is $20,000 In
In the United States and Russia, people consume 2 goods: cars and bread. In the United States the annual expenditure on cars is $20,000 In the United States the annual expenditure on bread is $5,000 In Russia the annual expenditure on cars is Rubles 10,000 In Russia the annual expenditure on bread is Rubles 10,000 1 US dollar is worth 80 Rubles. If we use the market exchange rate, what is the value of consumption in Russia relative to the United States? (Calculate total Russian consumption in rubles; convert into dollars using the market exchange rate; then compute the American consumption in dollars; finally take the ratio of total Russian consumption in dollars and American consumption in dollars; the result should be a number between 0 and 1, like 0.14.
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