Question
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.
- No, you are producing nothing. You are just taking advantage of market disparities and profiting from them.
- 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.
- 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.
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