Tradability is the property of a

good In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice between possible actions. Good is generally considered to be the opposite of evil and is of interest in the study of ethics, morality, ph ...

or service that can be sold in another location distant from where it was produced. A good that is not tradable is called non-tradable. Different goods have differing levels of tradability: the higher the cost of transportation and the shorter the shelf life, the less tradable a good is. Prepared food, for example, is not generally considered a tradable good; it will be sold in the city in which it is produced and does not directly compete with other cities' prepared foods. Some non-commodities and services such as

haircut A hairstyle, hairdo, haircut or coiffure refers to the styling of hair, usually on the human scalp. Sometimes, this could also mean an editing of facial or body hair. The fashioning of hair can be considered an aspect of personal grooming ...

s and

massage Massage is the manipulation of the body's soft tissues. Massage techniques are commonly applied with hands, fingers, elbows, knees, forearms, feet or a device. The purpose of massage is generally for the treatment of body stress or pain. In E ...

s are also obviously non-tradable. However, in recent years even pure services such as

education Education is a purposeful activity directed at achieving certain aims, such as transmitting knowledge or fostering skills and character traits. These aims may include the development of understanding, rationality, kindness, and honesty ...

can be regarded as tradable due to advancements in

information and communications technology Information and communications technology (ICT) is an extensional term for information technology (IT) that stresses the role of unified communications and the integration of telecommunications ( telephone lines and wireless signals) and computer ...

Price equalization

Perfectly tradable goods, like shares of stock, are subject to the

law of one price The law of one price (LOOP) states that in the absence of trade frictions (such as transport costs and tariffs), and under conditions of free competition and price flexibility (where no individual sellers or buyers have power to manipulate prices ...

: they should cost the same amount wherever they are bought. This law requires an

efficient market The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted bas ...

. Any discrepancy that may exist in pricing perfectly tradable goods because of foreign exchange market movements, for instance, is called an arbitrage opportunity. Goods that cannot be costlessly traded are not subject to this law. Less than perfectly tradable goods are subject to distortions such as the

Penn effect The Penn effect is the economic finding that real income ratios between high and low income countries are systematically exaggerated by gross domestic product (GDP) conversion at market exchange rates. It is associated with what became the Penn Wo ...

, for example, a lowering of prices in less wealthy place. Perfectly non-tradable goods are not subject to any leveling of price, thus the disparity between similar parcels of

real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...

in different locations. There should be no distortions in purchasing power parity for perfectly tradable goods. The differences between it and other methods are the result of non-tradable goods and the above-mentioned Penn effect.

References

Trade {{trade-stub