Is the Car Overpriced in Mexico?

Based on the given data, is the car overpriced in Mexico?

a. The car is underpriced in Mexico

b. Purchasing Power Parity holds

c. The car is overpriced in Mexico

Answer:

The correct statement is: The car is overpriced in Mexico.

Comparing the prices, we can see that the car is priced higher in Mexico (276,000 pesos) compared to the equivalent price in the United States (256,000 pesos). So, the car is overpriced in Mexico.

Based on the given information, we can determine whether the car is underpriced or overpriced in Mexico by comparing the prices in the two countries.

In the United States, the car costs $16,000.

To convert this amount to pesos, we need to use the exchange rate of 1 dollar = 16 pesos.

$16,000 * 16 pesos/dollar = 256,000 pesos.

So, in the United States, the car costs 256,000 pesos.

However, in Mexico, the car is priced at 276,000 pesos.

Therefore, the correct statement is: The car is overpriced in Mexico.