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1

The Law of One Price is an economic theory that states that the price of identical goods in different markets must be the same after taking the currency into consideration. The law principally applies to assets traded in financial markets. The Law of One Price is based on several assumptions, which include free competition in the markets, the absence of trade restrictions, and price flexibility. The law of one price is generally applicable to a wide range of goods, securities, and assets. The LOOP primarily holds due to arbitrage opportunities. If the prices of identical goods diverge from each other across the markets, arbitrage opportunities arise since a trader may purchase a good in a market at a lower price and immediately sell it in another market at a higher price for a net profit. Economic theory states that subsequently, the forces of supply and demand will converge the prices across the markets and, therefore, the arbitrage opportunities will be eliminated. My opinion it will undoubtedly take a plus on value variations. Here, Arbitrage comes into play wherever we will at the same time get and sell of an equivalent security in several markets to require advantage of their value variations. The different reason prices might differ for the same product. One is aesthetic look of a product encompasses a vital impact on its value. For this reason, you'll usually see completely different costs on a product reflective the variability of grades presently obtainable. On the other one is financial encompasses a heap of competitors, every of whom sets their own costs. One displays the simplest costs per product and per grade on our site to supply customers the best price. the simplest worth will vary from day to day. In this article investors bet against the stock by borrowing shares from an investment bank and then selling them. Short sellers hope the stock will go down, so they can buy the shares back at lower prices and return them to the investment bank, turning a profit on the difference. That’s the advantages of this price difference.

2

I do not think that the Big Mac should be priced the same everywhere. This would not take into account many of the differences between the countries. An example of this could be cultural differences. Country A might more incline to eat more junk food than country B. If we fallow the supply and demand models the country with the highest demand tends to have the highest prices.

Another reason why I think the Big Mac should have different prices is the law of one price. The law of one price relies on a perfect world in which there are no restrictions, transportation costs, or legal restrictions. The previously mentioned conditions allow buyers and sellers to do arbitrage. If market participants did arbitrage the prices would be the same everywhere. In the case of a Big Mac that would not be possible due to the nature of the item.

I do think that certain assets can be priced the same everywhere. An example of this could be traded assets like gold. Since the assets are listed it makes it easier for a market participant to do arbitrage. This condition allows the market to quickly correct market inefficiencies and correct price differences.