Arbitrage: Buy Low, Sell High

Arbitrage is the practise of buying something where it is cheaper and selling it where it is more expensive.

The word is most often applied in trading financial instruments or money, but the concept itself is absolutely fundamental to economics.

Trade between cities and nations is a good example of arbitrage.

To try this for yourself:

• start an Experiment game in Ludopolis
• make two cities, and grow them (by claiming land with food, building enough housing, etc.)
• in the first city, build a leatherworker and let it build a supply of clothing
• you will see the price of clothing decrease in the first city
• tax the city, and then exchange the taxed goods for clothing
• move to the second city
• you will notice that you can trade the clothing for more goods in the second city, as the price of clothing is higher

If you build some trading capacity in the second city, trading companies may spring up to take advantage of the difference in clothing prices. If this happens, then the price difference between the cities will start to converge.