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24.3: Using Money to Buy Goods and Services
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- What is arbitrage?
- What is the law of one price?
Using Money to Make Money: Arbitrage
- Arbitrage is the process of making a profit by buying goods at a low price and selling them at a higher price.
- When arbitrage is possible, we expect the same good to sell at the same price. There are no arbitrage profits to be made when the law of one price holds.
- All else being the same, if the price level increases, what happens to the real value of money?
- Explain why the law of one price is less likely to hold for a service than for a good.