The Following Two Graphs Depict the Equilibrium Price of a Pound

question 149

Multiple Choice

The following two graphs depict the equilibrium price of a pound of flax seed in Kentucky and West Virginia, respectively. Assume the type and quality of the flax seed being sold in the two states are identical. Further, assume flax seed sellers incur zero costs to transport flax seed between the two states and that there are no other barriers to trade. Use these graphs to answer the next questions.

-Suppose the price of a pound of flax seed in West Virginia is currently $1.00. The law of one price suggests that because the price of a pound of flax seed is $1.20 in Kentucky, the price of a pound of flax seed will be ________ in West Virginia after sellers adjust their supplies in both markets.

• A) $1.20
• B) $1.00
• C) $0.80
• D) between $1.20 and $1.00
• E) between $1.00 and $0.80

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