Which of the following does not explain why the law of one price fails?
A) products have different standard sizes and features in different countries
B) transporting a good to a distant market raises its cost
C) goods imported across borders are often subject to tariffs
D) nominal exchange rates do not change as often as product prices
E) firms may set prices to be competitive in local markets regardless of production and distribution costs

Question

Quizplus · Accepted Answer

The law of one price fails primarily due to factors that cause price differences across locations, such as transportation costs, tariffs, market segmentation, and product differentiation. Nominal exchange rates not changing as often as product prices does not directly explain the failure of the law of one price, as this law assumes prices would equalize when accounting for exchange rates, not that exchange rates adjust to maintain price equality.

Which of the Following Does Not Explain Why the Law