Author Question: Under what circumstances will the law of one price hold, and when might it not hold? What will be ... (Read 95 times)

cabate · **on:** Jun 29, 2018

Under what circumstances will the law of one price hold, and when might it not hold?

What will be an ideal response?

Question 2

The average price of gasoline in your neighborhood is 2.15 per gallon.

Your neighbor, Diana tells you that you can save a lot by frequenting a gas station 20 miles outside your neighborhood where the price of gasoline is 2.06 per gallon However, she cautions you that there are usually long lines at that station. Is her suggestion beneficial to you?
A) No, my friend is misled; clearly, the lower-priced gasoline must be of inferior quality and could damage vehicles.
B) No, if one factors in the non-monetary opportunity costs (driving time and waiting in line), it could prove more costly to go to the lower-priced gasoline station.
C) Yes, the lower price of gasoline at the rival station increases my purchasing power and enables me to consume more of other goods.
D) Yes, since gasoline is a necessity for car owners, the total cost savings would be relatively substantial.

mcni194 · **Reply #1 on:** Jun 29, 2018

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