According to The Economist , in early 2004 the average price of a tall latté in Starbucks in the United States was $2.80. In the countries that use the euro, the average price was 2.93 euros. Because the exchange rate at this time was 0.79 euro per dollar, the dollar price of lattés in the euro area was $3.70. At what exchange rate between the dollar and the euro would a latté cost the same in the euro area as it did in the United States?

Question

Carlos Gregory

Social Studies

16 May, 01:11

According to The Economist , in early 2004 the average price of a tall latté in Starbucks in the United States was $2.80. In the countries that use the euro, the average price was 2.93 euros. Because the exchange rate at this time was 0.79 euro per dollar, the dollar price of lattés in the euro area was $3.70. At what exchange rate between the dollar and the euro would a latté cost the same in the euro area as it did in the United States?

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Answers (1)

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Jack Haynes · Answer 1

At an exchange rate of 1.05 euro per dollar the cost of a latté would be the same in the euro area as it did in the United States.

Explanation:

The contidion is that the two prices are equal:

exchange rate * $2.8 = Euros 2.93

Solve for the exchange rate:

exchange rate = Euros2.93/$2.80 = Euro 1.05/$

Thus, at an exchange rate of 1.05 euro per dollar the cost of a latté would be the same in the euro area as it did in the United States.