What is the law of one price?
Act on one price is the theory in economics that identical goods should be prices for the same after billing the exchange rate in different countries if the market is effective. When prices differ and people take advantage of arbitration, their actions are pushing prices to get closer and eventually balance them. Radically different prices are an indicator of ineffectiveness of market or special circumstances. For example, trading in one market should trade at a similar price on another market. If people are aware of different prices on a different market, they will attract the most advantageous prices for their interests. This changes the supply or demand on the market, which leads to a price adjustment.
Commodivazby, the law of one price must also include shipping costs. In this case, it would be expected that the price for a commodity in two different locations would vary from transport costs. If the price differs more than this, it is a sign of developing market trend, such as a shortage that increases the price unusually high or decreaseThe prices. People can take advantage of different values to engage in arbitration and trade in price differences for profit.
This economic concept is closely linked to the parity of purchasing power. In the same and efficient markets, people should be able to buy goods for the same price, after accounting for exchanges and inflation, anywhere in the world. For example, a cup of coffee should cost the same no matter where someone consumes it. The fact that this is not so often is not necessarily a violation of the Act on One Price. Inside, it is a reflection of people who are acting on incomplete information or other differences in the market. For example, prices will increase in the nation where there is demand for coffee.
People participating in international trade must consider the Act on One Price in the preparation of the agreement and cooperation with prices in different countries. Exchange courses move quickly and regularly, so it is necessary to recalculate regularlyThey can also move prices and values and markets to suddenly shift and create price differences and opportunities for people in positions to act on them.