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. The specific meaning and etymology of the term and its ...

service Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a ...

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 head but sometimes on the face or body. The fashioning of hair can be considered an aspect of personal grooming, fashion, and cosmetics, although ...

s and

massage Massage is the rubbing or kneading 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 pa ...

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

education Education is the transmission of knowledge and skills and the development of character traits. Formal education occurs within a structured institutional framework, such as public schools, following a curriculum. Non-formal education als ...

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 In economics, 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 m ...

: 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 basis ...

. Any discrepancy that may exist in pricing perfectly tradable goods because of

foreign exchange market The foreign exchange market (forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. By trading volume, ...

movements, for instance, is called an

arbitrage Arbitrage (, ) is the practice of taking advantage of a difference in prices in two or more marketsstriking a combination of matching deals to capitalize on the difference, the profit being the difference between the market prices at which th ...

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, 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 in different locations. There should be no distortions in

purchasing power parity Purchasing power parity (PPP) is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries' currency, currencies. PPP is effectively the ratio of the price of a market bask ...

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