Відео

It is true, but the point is not pick a perfect substitute for a product. The example was about relative prices: consumers evaluating a good in terms of other good that could be bought with same amount of money. Consumers make decisions based on marginal satisfaction over price ratio. If the jacket is less needed but much cheaper, the consumer might buy it instead of more necessary, yet also more expensive shoes. This example is especially relevant for modern society where jackets and shoes are mostly bought for fashion trends and special offers as most mall visitors already have enough apparel to be warm.

@@basarabgogoneata2969 That's what I thought, well explained. Thank you.

Thank you too

Thank you too!

If I understand it right: country A can produce good X easier than country B. Should good X be cheaper in A than in B? Will this be contrary to the law of one price? Well, the key fact is not the cost of production but whether X is a tradable or a non-tradable good (whether one can easily import/export X). If X is tradable, law of one price should hold regardless of production costs. The price of X should be comparable in A and B, after adjusting for imperfections such as transport, information, taxation etc. Gold is not much cheaper in countries that produce it (again taking into consideration market imperfections) than in countries without gold mines.

Please visit www.ase.ro. Thank you