Explain the law of one price and why it might fail in reality.

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The law of one price says that identical goods should sell for the same price in different markets when prices are measured in the same currency. If a good is cheaper in one market, arbitrageurs would buy it there, ship it, and sell it in the more expensive market, locking in a risk-free profit until the price difference disappears. But in reality, price gaps can persist because of frictions that block perfect arbitrage: transportation costs add to the landed price and can outweigh small price differences; tariffs and other trade barriers raise the cost of moving goods across borders; and information asymmetries mean buyers and sellers don’t know where the best prices are or can’t act quickly enough. When these costs and frictions exist, identical goods need not fetch the same price across markets. Other statements describe related ideas like inflation adjustments or currency speculation, but they involve different mechanisms than the actual law of one price, which hinges on the feasibility of arbitrage in the presence of trade costs and market frictions.