Consider a Situation of Two Cities Linked by a Government-Subsidized

question 38

Multiple Choice

Consider a situation of two cities linked by a government-subsidized railway that effectively makes transportation free.In one city,there is high demand for fish and chips.In another city,fish and chips is considered unfashionable and is rarely eaten.Regardless of the difference in demand,the price for fish and chips is the same in both cities.This can be explained by what concept?

• A) exchange rate manipulation
• B) identical supply
• C) the law of one price
• D) variable inflation
• E) fixed exchange rates

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Definitions:

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