International trade in the absence of restrictions and transportation costs leads to price equalization for internationally traded goods, meaning that the domestic price equalizes with the price abroad.

Question

Quizplus · Accepted Answer

This is based on the theory of purchasing power parity (PPP) and the law of one price, which suggest that in the absence of transportation costs and barriers to trade (like tariffs and quotas), competitive markets will equalize the prices of identical goods and services in different countries when prices are expressed in a common currency.

International Trade in the Absence of Restrictions and Transportation Costs