0 B) any individual goods traded AbstractThis study considers the price convergence in different regions of China, which is the largest developing country in the world and a country in which the regional difference is much larger between provinces. Checking for existence of a string (or substring) inside another string is easier than it might seem. The law of one price (LOOP) states that in the absence of trade frictions (such as transport costs and tariffs), and under conditions of free competition and price flexibility (where no individual sellers or buyers have power to manipulate prices and prices can freely adjust), identical goods sold in different locations must sell for the same price when prices are expressed in a common currency. (1995): The Law of One Price over 700 Years, NBER Working Paper 5132. . Title: The Law of One Price Over 700 Years - WP/01/174 Created Date: 11/18/2001 8:06:55 AM As tests of the law seem to refute it, what might explain its refutation, and what alternative model(s) could account for the observed facts? According to the law of one price identical products should sell for the same price everywhere. 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. 5) None Of The Above. However, a requirement for this to occur is for goods to be traded so that arbitrage conditions exist. 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Well, as long as there are no costs incurred to transport the goods, there is a profit-making opportunity through trade. In common language, we cannot out rule out the fact that the law of one price may hold without full arbitrage. If the law of one price held, then the dollar price in Mexico should match the price in the US. 5) None Of The Above. This creates more efficient markets. Unlike in international trade, where it takes time and effort to move goods physically from one place to another, there are very little barriers in global financial markets. In logic, LoP is a necessary condition for arbitrage but not a sufficient one. (p. 228) The law of one price is not expected to hold for: A.. Differentiated goods You might need Schengen visa. It costs something to buy gold in Chicago and have it shipped to London. The law of one price may not hold even when transaction costs are zero because... the company of one product may be more reliable than its competitors. 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