Explain the Law of One Price. Give an example
What will be an ideal response?
The law of one price states that in competitive markets free of transportation costs and trade barriers, identical goods sold in different countries must sell for the same price when expressed in terms of the same currency.
= (E$/£) × ( ) for good i.
E$/£ = /
If, for example, the price of the same sweater was cheaper in London than in New York, U.S. importers and British exporters would have an incentive to buy sweaters in London and ship them to New York, pushing the London price up and the New York price down, until both were equal.
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Because of increasing marginal cost, most supply curves
A) are horizontal. B) are vertical. C) have a negative slope. D) have a positive slope.
Which of the following is correct when the perfectly competitive firm is producing its long-run equilibrium output level?
a. MR equals MC. b. AR equals ATC. c. P equals MC. d. All of these.
Using Figure 2 below, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE3 might be:
A. consumption spending increases. B. investment decreases. C. imports increase. D. exports decrease.
In 1997–1998, which one of the following countries experienced a sharp depreciation of its currency?
a. Argentina b. Brazil c. Thailand d. Italy