Final answer:
False. Arbitrage tends to cause prices for the same good to converge rather than diverge from one another.
Step-by-step explanation:
False. Arbitrage tends to cause prices for the same good to converge rather than diverge from one another.
Arbitrage involves taking advantage of price differences between markets by buying a good at a lower price in one market and selling it at a higher price in another market. The process of arbitrage helps to eliminate price discrepancies and align prices across different markets.
For example, if a product is priced higher in one market compared to another market, arbitrageurs would buy the product at the lower price and sell it in the higher-priced market. This would lead to an increase in demand in the lower-priced market, causing the price to rise, and a decrease in demand in the higher-priced market, causing the price to fall. Ultimately, the prices would converge towards equilibrium.