Microeconomics (7th Edition)
Microeconomics (7th Edition)
7th Edition
ISBN: 9780134737508
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 16, Problem 16.1.1RQ

What is the law of one price? What is arbitrage?

Expert Solution & Answer
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To determine

Law of one price and arbitrage.

Explanation of Solution

According to the law of one price, identical products need to be sold for the same price everywhere. Arbitrage is a practice, whereby, a product is bought from one market at a low price and is resold in another market at a higher price.

Economics Concept Introduction

Concept introduction:

Law of one price: The law states that identical products need to be sold for the same price everywhere.

Arbitrage: Arbitrage is the practice of buying a product at a low price from one market and reselling it at a higher price in another market.

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