So long as the ratio of prices in country A differs from that in country B, the flow of goods between the two countries will steadily increase as traders become increasingly aware of the profit to be obtained by moving goods between the two countries.
Prices, however, will be affected by these changing flows of goods.
The wine price in country A, for example, can be expected to fall as larger and larger supplies of imported wine become available.
Thus A's wine-cloth price ratio of 1:2 will fall.
For comparable reasons, B's price ratio of 1:3 will rise.
When the two ratios meet, at some intermediate level, the flow of goods will stabilize.
Amplification of the theory.
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