Question

The law of one price states that: The cost of an individual good should be higher in countries with higher productivity In ideally efficient markets, the real purchasing power of a currency should be the same regardless of where it is spent The nominal exchange rates should always be the same as the real exchange rates, both in the short run and in the long run Which of the following scenarios illustrates why the law of one price may not hold?

a. The formation of the European Union creates a custom union among its member states, where internally traded goods are not subject to custom duties, tariffs, or import quotas.
b. Small electronic devices, such as computer chips, are relatively light and can be shipped in bulk.
c. Cement is very heavy, and the cost of shipping is measured by weight.

Answer 1

Answer: c. Cement is very heavy, and the cost of shipping is measured by weight

Step-by-step explanation:

The Law of One price is that prices of a good should be the same regardless of where they are being sold in the world after accounting for currency rate conversion.

Cement might be tough to this.

Because of the high transportation cost, it would be difficult to charge the same price across nations because the of the high transport costs that needs to be employed need to be covered.