For which of the following is the law of one price least likely to hold?
A) Haircuts
B) Gold
C) US Treasury Bonds
D) Petroleum
A
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Fresh Flour makes baking flour and sells its flour in 4 pound sacks or bags. The managers of Fresh Flour are considering whether the firm should make or buy the flour sacks. To make the sacks, Fresh Flour needs a $500,000 piece of equipment. Using this equipment, Fresh Flour can make a flour sack for $0.01 and, for simplicity, ignore taxes and assume that the $0.01 cost includes depreciation and
all other costs. Fresh Flour would finance the $500,000 investment using its own funds and, if it purchased the flour sacks from another firm, it would pay $0.19 a flour sack. The life span of the equipment is 10 years and it has no salvage value at the end of the ten years. If the discount rate is 6 percent and the firm needs 400,000 flour sacks a year, what is the present value of the equipment? A) $623,850 B) $459,250 C) $500,962 D) $529,926
Other things the same, a decrease in the price level makes the interest rate decrease, which leads to a depreciation of the dollar in the market for foreign-currency exchange
a. True b. False Indicate whether the statement is true or false
An inferior good is one in which
a. the average consumer chooses not to consume.
b. the good is not equally valued by all consumers.
c. an increase in income increases consumption of the good.
d. an increase in income decreases consumption of the good.
The advantage of a system of fixed exchange rates over one where exchange rates are flexible is that
A. the government gains more control over the economy. B. floating exchange rates impose risks on importers and exporters from unpredictable exchange rates. C. exchange controls become unnecessary. D. fiscal and monetary policy can focus more on domestic conditions.