A product will be internationally traded as long as the pretrade price differential between the trading partners is
A) greater than the cost of transporting it between them.
B) equal to the cost of transporting it between them.
C) less than the cost of transporting it between them.
D) variable, but always decreasing.

Question

Quizplus · Accepted Answer

According to the law of one price, a product will be internationally traded if the price differential between trading partners is greater than the cost of transporting it between them. Therefore, option A is correct. Option B is incorrect because if the price differential is equal to the cost of transportation, there will be no profit from trade. Option C is incorrect because if the cost of transporting the product is greater than the price differential, there will be no incentive to trade. Option D is incorrect because the price differential may increase or decrease depending on various factors.

A Product Will Be Internationally Traded as Long as the Pretrade