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Explain what is meant by ‘the law of one price’ and critically evaluate its perceived role...

Explain what is meant by ‘the law of one price’ and critically evaluate its perceived role in determining exchange rates

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Answer #1

law of one price

law of one price is an economy theory that states that the price of any goods or service are equal when taking exchange rate into consideration. law of one price is states in other word as purchasing power parity.

Example, law of one price

Suppose price of one-bushel rice in USA is $1 and current Exchange rate between USD / INR is INR65 per USD. So according to law of one price, price of one bushel of rice in India will be equal to INR65. that is price of 1 bushel of rice in both country is equal.

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