Question

True or False: The Law of One Price states that in competitive markets free of transportation costs and barriers to trade (such as tariffs), identical products sold in different countries must sell for the same price when their price is expressed in the same currency.

Answer 1

Answer:

The Law of One Price stated in the question above is TRUE

Explanation:

The law of one price is an economic concept that states that the price of an identical asset or commodity will have the same price globally, regardless of location, when certain factors are considered.

The law of one price takes into account a friction less market, where there are no transaction costs, transportation costs, or legal restrictions, the currency exchange rates are the same, and that there is no price manipulation by buyers or sellers.

This law exists because differences between asset prices in different locations would eventually be eliminated due to the arbitrage opportunity.

These are the maxims upon which the law of one price is founded

• The law of one price states that in the absence of friction between global markets, the price for any asset will be the same.  

• The law of one price is achieved by eliminating price differences through arbitrage opportunities between markets.

• Market equilibrium forces would eventually converge the price of the asset.

Answer 2

Answer:

It is False

The law of one price (LOOP) states that in the absence of trade frictions (such as transport costs and tariffs), and under conditions of free competition and price flexibility (where no individual sellers or buyers have power to manipulate prices and prices can freely adjust), identical goods sold in different.