In equilibrium, all traded goods sell at the same price internationally because of:
A) government direction.
B) arbitrage.
C) markets in which buyers and sellers do not interact.
D) the fact that the underlying value is the same everywhere.

Question

Quizplus · Accepted Answer

Arbitrage refers to the practice of buying goods at a lower price in one market and immediately selling them in another market for a higher price, thus profiting from the price difference. In an international context, the existence of arbitrage opportunities ensures that prices of similar goods in different markets are equalized, as traders will quickly move to exploit any price differentials. This process helps to maintain equilibrium prices across borders, ensuring that goods sell at the same price internationally.

In Equilibrium, All Traded Goods Sell at the Same Price