12 Arbitraging price differences between two markets is gene

12. Arbitraging price differences between two markets is generally not possible if: A) there are positive costs of transporting the products from one market to the other. B) the transportation costs are larger than the difference in prices. C) the government has prohibited exchange between the two markets. D) B and C above E) A and C above (Please provide Explanations why you chose that answer?)

13. Which of the following would cause a rightward shift in the demand curve for gasoline? I. A large decrease in the price of automobiles. II. A large reduction in the costs of producing gasoline. III. A large increase in the price of public transportation. A) I only B) II only C) I and II only D) I and III only E) I, II, and III ((Please provide Explanations why you chose that answer?)

Solution

12. The correct answer is: E)

Reason: Arbitrage can\'t be possible if there are restrictions on the exchange between the markets. Also, it is not profitable if the transaction costs are greater than the difference in price.

13. The correct answer is: B)

Reason: Gasoline and automobiles are complements, so as the price of automobile decreases, the demand for automobile increases and thus the demand for gasoline increases.