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Explain in a few sentences what would happen according to the Law of One Price to...

  1. Explain in a few sentences what would happen according to the Law of One Price to the supply and demand if identical assets were priced differently in two different regions.
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Answer #1

Identical assets must sell at the same price in each region. If the price is different, then there would be arbitrage. People would start buying where it is cheap and sell it where it is expensive. Hence, the demand would increase where the asset is priced cheap or lower. This excess demand will increase the price. Now in the other region, the supply would increase. This excess supply will decrease the price. The market forces will force the two regions to have the same price.

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