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International Economics, 8e (Krugman) Chapter 15 Price Levels and the Exchange Rate in the Long Run 15.1 The Law of One Price 1) Which of the following statements is the most accurate? The law of one price states: A) in competitive markets free of transportation costs and official barrier to trade, identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. B) in competitive markets free of transportation costs and official barrier to trade, identical goods sold in the same country must sell for the same price when their prices are expressed in terms of the same currency. C) in competitive markets free of transportation costs and official barrier to trade, identical goods sold in different countries must sell for the same price. D) identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. E) None of the above. Answer: A Question Status: Previous Edition 2) Under Purchasing Power Parity, A) E$/E = P US/P E. B) E$/E = P E/P ES. C) E$/E = P US + PE . D) E$/E = P US - P E. E) None of the above. Answer: A Question Status: Previous Edition 3) Explain the Law of One Price. Give an example. Answer: The law of one price states that in competitive markets free of transportation costs and trade barriers, identical goods sold in different countries must sell for the same price when expressed in terms of the same curre