Arbitraging price differences between two markets is generally not possible if:
A) there are positive costs of transporting the products from one market to the other.
B) the transportation costs are larger than the difference in prices.
C) the government has prohibited exchange between the two markets.
D) A and C above
E) B and C above

Question

Quizplus · Accepted Answer

Even if there are price differences between two markets, arbitrage is not possible if the transportation costs are higher than the price difference. Additionally, if the government has prohibited exchange between the two markets, arbitrage is not possible as well. Therefore, both options B and C need to be present for arbitrage to be not possible.

Arbitraging Price Differences Between Two Markets Is Generally Not Possible