The Equilibrium Exchange Rate of the Swiss Franc Is $0

question 73

Multiple Choice

The equilibrium exchange rate of the Swiss franc is $0.90. At an exchange rate $.83:

• A) U.S. demand for Swiss francs would exceed the supply of francs for sale and there would be a shortage of francs in the foreign exchange market.
• B) U.S. demand for Swiss francs would be less than the supply of francs for sale and there would be a shortage of francs in the foreign exchange market.
• C) U.S. demand for Swiss francs would exceed the supply of francs for sale and there would be a surplus of francs in the foreign exchange market.
• D) U.S. demand for Swiss francs would be less than the supply of francs for sale and there would be a surplus of Swiss francs in the foreign exchange market.

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Definitions:

Very Elastic

A description of a demand or supply curve which shows that the quantity demanded or supplied changes significantly as price changes.

Unit Elastic

A situation in which a one percent change in price causes an equal percentage change in quantity demanded or supplied.

Very Inelastic

Describes a situation where the demand or supply for a product is barely affected by changes in the price.

Calculate Elasticity

entails determining the degree to which the quantity demanded or supplied of a good changes in response to a change in its price.