The law of one price stipulates that an identical product must have an identical price in all countries when the price is expressed in a common currency.

Question

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The law of one price asserts that in the absence of trade frictions (like transportation costs and tariffs) and under conditions of free competition and price transparency, an identical product should sell for the same price in different countries when prices are expressed in the same currency. This principle underlies the theory of purchasing power parity.

The Law of One Price Stipulates That an Identical Product