the price of an ounce of gold is the same everywhere in the word. for example, the price of an ounce of gold is the same in London as it is in New York City. house prices are not the same everywhere, though. for example, the median price of a house in Los Angeles, California, is higher than the median price of a house in Dubuque, lowa. why are gold prices the same everywhere while house prices are different?
to answer the question, let's look at what would happen if gold prices were not the same everywhere in the word. lat's assume the price of an ounce of gold is $250 in London and $300 in New York City. what happens? Obviously this difference in prices for the same good presents a profit opportunity. people will buy gold in London for $250 an ounce, ship it to New York City, and sell it for $300 an ounce. if we ignore the costs of transporting the gold, a $50 profit per ounce is earned. when an opportunity exists for profit-by buying low and selliing high-individuals are quick to try to capture the profit.
as gold is moved from London to New York in search of profit, the supply of gold in London will push up the price of gold (from $250), and a rising gold supply in New York will push down the price of gold (from $300). as the London gold price rises and the New York gold price falls, a point will eventually be reached where the two prices are the same. when the London price and New York price for gold are the same, profit cannot be earned by moving gold from London to New York. in short, any difference in the price of gold in various locations will quickly be eliminated by changes in the supply of gold in the various locations.
can the same hold for houses? if the price of a house in Los Angeles is higher than the price of a house in Dubuque, is it possible to move houses and land from Dubuque to Los Angeles? of course not. we can't pick up a house and its lot in Dubuque and move them to Los Angeles, in the process reducing the supply of houses and land in Dubuque and increasing the supply of houses and land in Los Angeles. because the supply of houses and land cannot be reshuffle the way the supply of gold can be, we expect differences in house prices in various locations but not differences in gold price.
1) what causes the price of gold to be the same in New York and London?
2) the price of a Toyota Camry is nearly the same in Miami as it is in Dallas. why?
the price of an ounce of gold is the same everywhere in the word. for example, the price of an ounce of gold is the same in London as it is in New York City. house prices are not the same everywhere, though. for example, the median price of a house in Los Angeles, California, is higher than the median price of a house in Dubuque, lowa. why are gold prices the same everywhere while house prices are different?
to answer the question, let's look at what would happen if gold prices were not the same everywhere in the word. lat's assume the price of an ounce of gold is $250 in London and $300 in New York City. what happens? Obviously this difference in prices for the same good presents a profit opportunity. people will buy gold in London for $250 an ounce, ship it to New York City, and sell it for $300 an ounce. if we ignore the costs of transporting the gold, a $50 profit per ounce is earned. when an opportunity exists for profit-by buying low and selliing high-individuals are quick to try to capture the profit.
as gold is moved from London to New York in search of profit, the supply of gold in London will push up the price of gold (from $250), and a rising gold supply in New York will push down the price of gold (from $300). as the London gold price rises and the New York gold price falls, a point will eventually be reached where the two prices are the same. when the London price and New York price for gold are the same, profit cannot be earned by moving gold from London to New York. in short, any difference in the price of gold in various locations will quickly be eliminated by changes in the supply of gold in the various locations.
can the same hold for houses? if the price of a house in Los Angeles is higher than the price of a house in Dubuque, is it possible to move houses and land from Dubuque to Los Angeles? of course not. we can't pick up a house and its lot in Dubuque and move them to Los Angeles, in the process reducing the supply of houses and land in Dubuque and increasing the supply of houses and land in Los Angeles. because the supply of houses and land cannot be reshuffle the way the supply of gold can be, we expect differences in house prices in various locations but not differences in gold price.
1) what causes the price of gold to be the same in New York and London?
2) the price of a Toyota Camry is nearly the same in Miami as it is in Dallas. why?
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