The law of one price is a theory that says that exchange rates are determined so that the price of the same good would be about the same across difference countries. This is sometimes called purchasing power parity (PPP), which works well in the long run, but it works very badly in the short term. When does this work best?

Select one:

a. for tradeable goods, where transport costs are low compared with the value of the good

b. for non-tradeable goods, where transport costs are prohibitive

c. neither of the above