Which of the following statements is the MOST accurate? The law of one price states
A)in competitive markets free of transportation costs and official barriers to trade,identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency.
B)in competitive markets free of transportation costs and official barrier to trade,identical goods sold in the same country must sell for the same price when their prices are expressed in terms of the same currency.
C)in competitive markets free of transportation costs and official barrier to trade,identical goods sold in different countries must sell for the same price.
D)identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency.
E)in competitive markets free of official barrier to trade,identical goods are sold at the same price regardless of transportation costs.

Question

Quizplus · Accepted Answer

The law of one price states that in competitive markets free of transportation costs and official barriers to trade, identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. This means that differences in prices of the same goods in different countries should be eliminated by exchange rate adjustments. Therefore, option A is the most accurate statement. Option B is incorrect because identical goods sold in the same country may have different prices due to factors such as local demand, supply, and competition. Option C is incorrect since it does not take into account the currency exchange rates. Option D is close, but it does not consider the role of transportation costs and official barriers to trade. Option E is also incorrect because transportation costs can affect prices of identical goods in different locations.

Which of the Following Statements Is the MOST Accurate? the Law