International trade based on external scale economies in both ...

[Awilson837]

International trade based on external scale economies in both countries is likely to be carried out by
 
  A) a relatively large number of price competing firms.
  B) a relatively small number of price competing firms.
  C) a relatively small number of imperfect competitors.
  D) monopolists in each country.
  E) a large number of oligopolists in each country.

Question 2

Explain the Law of One Price. Give an example.
 
  What will be an ideal response?

[ecox1012]

Answer to Question 1

A

Answer to Question 2

The law of one price states that in competitive markets free of transportation costs and trade barriers, identical goods sold in different countries must sell for the same price when expressed in terms of the same currency.
= (E/)  ( ) for good i.
E/ = /
If, for example, the price of the same sweater was cheaper in London than in New York, U.S. importers and British exporters would have an incentive to buy sweaters in London and ship them to New York, pushing the London price up and the New York price down, until both were equal.

[Awilson837]

Gracias!

[okolip]

Thanks for the timely response, appreciate it