Buy low and sell high is advice given to people who want to make a profit by buying and selling shares of stock. Arbitrage is defined as buying a product in one market at a low price and reselling it in another market at a high price.
Therefore, when stock brokers buy and sell stocks to earn a profit they are engaging in arbitrage. Evaluate this statement; state whether it is true or false and explain your answer.
Question 2
Consider the following hypothetical scenarios:
Scenario A: You are about to purchase a pair of 7 for All Mankind jeans for 175 and a t-shirt for 45.
The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for 160 at another store, located about a 20-minute drive away.
Scenario B: You are about to purchase a pair of 7 for All Mankind jeans for 175 and a t-shirt for 45. The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for 30 at another store, located about a 20-minute drive away.
Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store?
A) Scenario A because the pair of jeans is a very expensive item and 15 saving is quite substantial
B) Scenario B because a 15 saving amounts to a substantial discount (about 33 percent)
C) in either scenario if I think a 15 savings is worth the 20-minute trip
D) in none of these scenarios if I think the 15 saving is not worth the 20-minute trip
E) C and D are correct answers.
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