The Principle of One Price is a statement of the commonsense notion that one should "buy cheap and sell dear." It is perhaps the single most important principle underlying international trade theory. In brief, what this principle proposes is that in the international market, goods, factors of production, and services flow from low-price regions to high-price regions. The Principle of One Price applies to the factors of production, taxes, governmental regulations, and even warehouses, as well as to commodities such as cars and consumer goods.
Products will move from regions where they are abundant and cheap to regions where they are scarce and dear—whether the products are bananas, shirts, cars, or VCRs. Similarly, multinational corporations will move away from countries with high taxes and a lot of government regulations to countries with lower taxes and fewer regulations. Companies will also take advantage of lower costs in foreign countries in other ways; Japanese companies, for example, use U.S. ships and U.S. warehouses to transport and store their products destined for export because warehousing expenses are extremely high in Japan, where land is scarce.
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