BMK 201 Lecture Notes - Lecture 28: Ceteris Paribus, Marginal Utility, Transaction Cost
6 Jan 2021
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Full price is a combination of the transaction price and the transaction cost. Transaction cost the expenses of trading with others above and beyond the transaction price. If transaction costs are zero, we have the law of one price. The transaction price of identical good should be the same across markets. If transaction costs are greater than zero, we have the force of one price. The price difference of identical goods in the two markets must not exceed the transaction costs of buying the good in one market and selling in another. Any deviation from lop or fop results in arbitrage opportunities. Arbitrage opportunities the act of profiting from price differentials across markets. Demand schedule of different quantities of a product that buyers will purchase at different prices at a given time and place. The lower the price, the more of the same product will be purchased (ceteris paribus) Infers negative relationship between quantities purchased and prices paid.
