Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Before you begin to answer this question, look up the word arbitrage to find a definition.Discuss the definition of arbitrage, how it relates to economics,

Before you begin to answer this question, look up the word "arbitrage" to find a definition.Discuss the definition of arbitrage, how it relates to economics, and it's importance.After that, look at the below situation and provide your answer and reasoning to the following:

You routinely travel between Rochester, Minnesota, and Madison, Wisconsin. You notice that the price of a winter coat in Rochester is $150 and the price of that same coat in Madison is $100. You see a profit-making opportunity here. You buy coats in Madison at the lower price and sell them in Rochester at the higher price, pocketing the difference. From an economics perspective, isthis good behavior?Be sure to usethe terminology, ideas, concepts, and theories as learned from this text to defend and support your decision.

  1. No, you are producing nothing. You are just taking advantage of market disparities and profiting from them.
  2. No, your action of buying coats in Wisconsin will have the effect of pushing prices up. Some people will not be able to afford a coat and freeze in the winter.
  3. Yes. You are providing a service equalizing prices of a common good in different markets. You are providing more coats to a market that values them more highly. The profit you earn is compensation for your effort.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics Principles Applications And Tools

Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez

7th Edition

978-0134089034, 9780134062754, 134089030, 134062752, 978-0132555234

More Books

Students also viewed these Economics questions

Question

Describe the sources of long term financing.

Answered: 1 week ago