Question

Arbitrage is: a) a form of negotiation between two parties having a disagreement. b) buying a good in one market and selling it in another for a profit. c) a form of price discrimination where the producer sells its product at two different prices. d) a means of deciding the most efficient way of producing a product.

Answer 1

The correct answer is B. Buying a good in one market and selling it in another for a profit.

Explanation:

The term "arbitrage" is used in the economy and similar contexts to describe the process in which a person, company or similar profits due to the differences in prices in different markets. This commonly implies an asset, product or service is bought in one market at a low price and then this is sold into a different market at a higher price which implies profit for the entity or individual that buys and sells the good. For example, a company or individual can buy a certain product in a foreign market where is cheaper due to the price of the foreign currency or changes in prices and then sell this at the local level. Therefore, arbitrage refers to buying a good in one market and selling it in another for a profit.