The law of one price Law of one price Identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency This law applies only in competitive markets free of transport costs and official barriers to trade Example: If the dollar/pound exchange rate is $1.50 per pound a sweater that sells for $45 in New York must sell for 530 in London Copyright C 2003 Pearson Education, Inc Slide 15-5Copyright © 2003 Pearson Education, Inc. Slide 15-5 The Law of One Price ▪ Law of one price • Identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. – This law applies only in competitive markets free of transport costs and official barriers to trade. – Example: If the dollar/pound exchange rate is $1.50 per pound, a sweater that sells for $45 in New York must sell for £30 in London