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Piano Palace Co . produces electronic keyboards in the United States. Its most popular keyboard sells for $ 1 , 0 4 0 . KeySharp
Piano Palace Co produces electronic keyboards in the United States. Its most popular keyboard sells for $ KeySharp Co Piano Palace's primary
competitor, is based in Germany and sells keyboards to US customers online. KeySharp sells its keyboards for euros.
Suppose that initially, the exchange rate was $ per euro.
This means that the price of KeySharp's keyboards to US consumers was euros $ per euro $
This means that the price of KeySharp's keyboards to US consumers was
Because this dollar price of keyboards from KeySharp is
than the dollar price of keyboards from Piano Palace, demand for Piano Palace keyboards is likely
relative to KeySharp's
keyboards in the United States.
Now suppose that the euro weakens relative to the dollar, and the exchange rate changes to $
After this change, the price of KeySharp's keyboards to US consumers is
Because this dolla
keyboards from KeySharp is
now
than the dollar price of keyboards from Piano Palace, demand for Piano Palace keyboards is likely
relative to KeySharp's
keyboards in the United States, due to the change in the exchange rate.
Suppose that Piano Palace not only sells keyboards in the United States but also exports and sells them to France another country in the eurozone
When the euro was $ consumers in France paid
euros for keyboards from Piano Palace. At this exchange rate, the euro price of
Piano Palace keyboards was
than that of KeySharp keyboards. However, at the newer exchange rate, the euro price of Piano Palace
keyboards is now
This would cause French consumers to increase demand for
Generalizing from the results of this fictionalized scenario, when other currencies are weak against the dollar, US imports should be relatively
while US exports should be relatively
leading to a
favorable position in terms of the balance of trade.
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