Not a Zero-Sum Game - Ludwig von Mises Institute

PART 11 COMMENTS ON TRADE BETWEEN "COUNTRIES"
Naturally, such a highly profitable activity won't last long
TABLE II Prices with free trade
Price relationship between a TV and a radio in each country
-- 1.33 1.33 : I
Sequence of events:
Competition emerges, tending to drive prices toward the elimination
of the discrepancy in price relationships, as shown in Table I.
As competitors begin to purchase radios and sell TVs, the spread narrows
and the purchasing power parity tends to settle near $1 : Y45.
The prices that would tend to prevail in each country are shown in bold in
the shaded boxes of Table II.
*1,200 1 45 = $26.67
"20 x 45 = Y900
Thus price relationships become the same in each country: 1.33 : 1,
as shown in Table II.
$26.67 / $20 = 1.33
Y1.200 / Y900 = 1.33
People would purchase the items where the price is lower, as shown in
shaded areas, regardless of origin.