If the identical product can be sold in two different markets, and there are no restrictions on its sale or transportation costs of moving the product between markets, the product's price should be the same in both markets. This is called ________.

Question

Quizplus · Accepted Answer

The scenario described in the question is an example of the law of one price, which states that identical goods should have the same price in different markets when there are no barriers to trade or transportation costs. Option A is incorrect because arbitrage represents taking advantage of price imbalances in different markets by buying low in one and selling high in another. Option B is incorrect because interest rate parity refers to the equilibrium condition in which the difference between interest rates in two countries is equal to the expected change in exchange rates between them. Option C is also incorrect because the Fisher Effect relates to the long-run relationship between nominal interest rates, inflation, and real interest rates.

If the Identical Product Can Be Sold in Two Different