Why doesn't Jen Caramichael exploit the price difference by buying Seiko watches in Tokyo for $740 each and selling them in New York for $1,000 each?
Goods with ____________ cannot be fully arbitraged because the cost of transporting them and providing them in the destination market might ___________.
Wrong! - Goods with only tradable components can be fully arbitraged because they can be transported between markets. If the cost were zero, arbitrage could eliminate the price difference.
You Got It! - Goods with a non-tradable component, like retail services, cannot be fully arbitraged because the non-tradable component must be provided in the other market, and its cost might use up the entire price difference.
While visiting Tokyo, Jen Caramichael noticed that a Seiko watch sells for about $740 there but around $1,000 in New York.—wsj.com