Prices for many goods are higher in the city of Shenzhen on the mainland of China than in the…
Prices for many goods are higher in the city of Shenzhen on the mainland of China than in the city of Hong Kong. An article in the Economist notes that “individuals can arbitrage these differences through what effectively amounts to smuggling.”
a. Explain what the article means when it notes that individuals can “arbitrage these price differences.”
b. Ultimately, what would you expect the result to be of individuals engaging in this arbitrage? Is your answer affected by the fact that the government of China requires a visa for Shenzhen residents to visit Hong Kong and regulates the number of trips that can be made between the two cities in a given year? Briefly explain.