Why are prices of goods and services cheaper in other countries relative to US, Europe or Japan.

The law of one price states that all identical goods or services should only have one price in an efficient market system. However the price of goods and services on some countries such as Thailand, Saudi Arabia, Russia or Hong kong are way cheaper compared to prices in the United States. For instance, the price of a local shoe in Thailand would only cost $4.00 while the same product may sell for $10.00 in the United States. Or, a typical meal might only cost as little as $2.00 in the Philippines and the exact same meal may cost as much as $6.00 in Germany.

A person living and working in the United Kingdom will find prices in the Philippines to be way cheaper compared to prices in the UK. However if you look at the median salary of a worker in the Philippines, it is about $250 a month while a typical salary for an English worker may be as high as $2800.

A factor that affects the balance of prices between two countries lies in their medium of exchange which is their local currency. Currencies are traded against each other in the global markets, it is dictated by the current demand for a currency relative to another. If there is a strong economic activity on a certain country, its currency would be in demand because it is used for the exchange of local goods and services. On top of that investors or traders would capitalize on that momentum and would buy a huge volume of that currency in exchange for another. This is common in the Foreign exchange market where they trade currencies. There are lots of factors affecting the value of a currency relative to another. One is the monetary base of that country, the inflationary rate or simply the general economic activity of a country. A country that exports a lot of goods would see its currency rise in value because the importer would have to convert their money to the exporters money for payment. As exchange rates change overnight, so as the relative price of goods and services between countries.

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