Two neighboring states have separate commodity exchanges for buying and selling natural gas. Supply and demand determine prevailing prices in each state, but by law, gas could not be bought or sold between the states. Typically, the prevailing price in the northern state was about 1.5% higher than in the southern state. Why might this be the case? Recently, the states agreed to use a single natural gas exchange for the two states. Explain why this would increase overall economic efficiency.

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Answer The price difference between the two states can be attributed to various factors such as tran... View the full answer