Question

According to the law of one price

A. if transaction costs are zero, identical goods should sell for the same price everywhere.
B. if transactions costs are zero, all firms must earn the same profit margin.
C. there must be no differences in the cost of producing identical goods by different producers.
D. if transactions costs are zero, firms must sell a product at a price equal to its marginal cost.

Answer 1

Answer: Option A

Explanation: In simple words, law of one price refers to the theory which states that, when the market is free and there is flexibility present in transactions then two identical products should sell for same amount in two markets using the same currency.

As per the law of one price, the brokers and dealers do not have any scope of arbitrage resulting in no further scope of earning abnormal profits. Hence from the above we can conclude that the correct option is A