Define the law of one price care- fully, noting its fundamental assumptions. Why are these assumptions so difficult to apply in the real world in order to apply the theory?
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Write My Essay For MeDefinition of the law
The law of one price is based on the doctrine of purchasing power parity that the actual purchasing power of varied currencies will always equalize the rate of inflation differentials among different countries and consequently causing commodities to have the same price. A good commodity that has been subjected to this law is oil. Similar products therefore being sold in different places must sell at a similar price when they are presented at a common currency.
Assumptions of the Law
The fundamental assumptions for this law include lack of trade frictions such as transport costs as well as tariffs, conditions of free competition and a market that has price flexibility where potential sellers and buyers do not have the legit power to change…
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