Question

"one u.s. dollar is worth eighteen mexican pesos." that statement is part of microeconomics, because we are talking about the cost in pesos of a single good, namely a dollar. Why is this reasoning incorrect?

A. An exchange of dollars for pesos, implicitly, an exchange across international borders. Any such exchange is by definition macroeconomic.

B. What makes the statement about dollars and pesos microeconomic is the fact that individual consumers can perform currency exchange transactions.

C. Mexico and the U.S., together with Canada, form a single trade zone, within which exchange rates between currencies are not micro- (or macro-) economically significant.

D. A dollar is not a "single good" in the required sense. It is a medium by which goods- all goods- are exchanged, and so changes in exchange rates between the dollar and other currencies affect the prices of all goods.

E. Microeconomics is about incomes, outputs, employment, and prices. Since an exchange rate does not fall under any of those topics, it is not part of the microeconomics.

Answer 1

Answer: D. A dollar is not a "single good" in the required sense. It is a medium by which goods- all goods are exchanged and so changes in exchange rates between the dollar and other currencies affect the prices of all goods.
Reason: In this case, the statement "One U.S dollar is worth 18 mexican pesos" does not imply microeconomics' part rather a macroeconomic one because the exchange of one currency for another currency defines exchange rate which is explained in terms of not only single good rather affects the exchange and prices of bundle of goods. Hence, Dollar being a good does not signify a single good rather a medium which will decide the prices and exchange of various goods. Hence, macroeconomics comes into play.