Tradability
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Tradability is the property of a
haircuts and massages are also obviously non-tradable. However, in recent years even pure services such as education can be regarded as tradable due to advancements in information and communications technology. [1]
Price equalization
Perfectly tradable goods, like shares of stock, are subject to the
efficient market. Any discrepancy that may exist in pricing perfectly tradable goods because of foreign exchange market movements, for instance, is called an arbitrage
opportunity. Goods that cannot be costlessly traded are not subject to this law.
Less than perfectly tradable goods are subject to distortions such as the Penn effect, for example, a lowering of prices in less wealthy place. Perfectly non-tradable goods are not subject to any leveling of price, thus the disparity between similar parcels of real estate in different locations.
There should be no distortions in purchasing power parity for perfectly tradable goods. The differences between it and other methods are the result of non-tradable goods and the above-mentioned Penn effect.
References
- Economist.com. Jun 7, 2007. Retrieved 2019-04-15.
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