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Chapter 23: Problem 13

(Related to the Chapter Opener on page 776) An article in the Wall Street Journal on changes in Intel's sales noted, "Intel sells its chips to customers in U.S. dollars, but many \(\mathrm{PC}\) makers that buy those chips sell their products in local currencies." In these circumstances, would an increase in the value of the dollar relative to foreign currencies be likely to help or hurt Intel's sales? Briefly explain.

Short Answer

Expert verified
In general, an increase in the value of the US dollar relative to foreign currencies would likely hurt Intel's sales as it would make Intel's chips more expensive for foreign PC makers. However, the actual impact would also depend on other factors such as the price elasticity of demand for Intel's chips and inflation rates in these foreign markets.

Step by step solution

01

Understanding the situation

Firstly, understand that when the value of the US dollar increases relative to other currencies, it means that the US dollar is strengthening. When this happens, US goods become more expensive for foreign buyers who must convert their local currency to dollars to make purchases.
02

Analyze the effect on Intel's sales

Given that Intel sells its chips in US dollars, an increase in the value of the US dollar means that these chips become more expensive for foreign PC makers who have to convert their local currency to dollars. Assuming all other factors remain the same, this could lead to a decrease in demand for Intel's chips in foreign markets as these chips become more expensive.
03

Consider other potential factors

Although the increase in the value of the US dollar may make Intel's chips more expensive in foreign markets, other factors could potentially offset this. For example, if the demand for Intel's chips in these markets is inelastic, meaning that buyers are not sensitive to price changes, then the increase in price may not significantly affect sales. Similarly, if there is inflation in these foreign markets, the real cost of Intel's chips may not increase despite the increase in the dollar value.

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