Question

If the price of Big Max in Switzerland, converted to US dollars was same as its price in the U.S. _________________ is said to exist

- absolute purchasing power parity

- law of one price

Answer 1

According to the definition of law of one price in the competitive market and with the free transportation cost and without any barriers to trade, when homogenous goods are sold in different countries, then these goods must sold for same price when their price are changed in the terms of same currency.

Therefore it can be said that when the price of Big Max in Switzerland, converted to US dollars was same as its price in the U.S. law of one price is said to exist.

Hence option second is the correct answer.