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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Explain the link between the Mexican demand for U.S. goods and the supply of pesos. Next, explain the link between the U.S. demand for Mexican goods and the supply of dollars.

To determine

The relationship between Mexican demand for U.S. goods and supply of pesos and explain relation between U.S. demand for Mexican goods and supply of dollars.

Explanation

Suppose a person, who is in Mexico needs to buy the product of U.S. but the Mexican has pesos, whereas the Americans have to be paid in terms of dollar. Hence, the person in Mexico needs to exchange the pesos with dollars.

As demand for U.S goods increases, demand for dollar also increases in order to buy the U.S. goods. The supply of pesos increases as there is an increase in the demand for dollar. Likewise, as demand for Mexican goods increases, the demand for pesos also increases in order to buy Mexican goods. Demand for pesos increases with increase in the supply of dollars.

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