Presentation on theme: "The Law of One Price and Agricultural Markets AG BM 102."— Presentation transcript:
The Law of One Price and Agricultural Markets AG BM 102
Introduction Markets seem confusing at first Lots of products, lots of prices Time, place, & product form They are much more orderly than meets the eye Reason – law of one price
Law of One Price - The economic principle that the same item or closely equivalent items must sell for the same price or related prices in the marketplace
What this means One big corn market Price now and price later linked by storage cost Price in Pennsylvania and Chicago linked by transport costs Price of corn and price of corn oil linked by processing costs
In practice Prices move together Market forces affect whole market Arbitrage keeps things orderly – Jesse Livermore May not exactly match but pretty close
Arbitrage -Attempting to profit by exploiting price differences of identical or similar products, on different markets or in different forms. The ideal version is risk- less arbitrage.
Transportation One important linkage Key provider of utility Creates spatial markets
Some vocabulary terminal costs - costs of loading, unloading, scheduling, etc. that are part of the cost of moving a product from one place to another but do not vary with distance. Inter-modal transportation - shipment of a product using more that one medium of transportation, such as truck and rail. backhaul - the return loading after hauling a cargo from A to B, i.e. a load that moves from B to A.