Increasing trade costs:

Question

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Increasing trade costs result in a wider arbitrage band. Trade costs refer to any costs or barriers that make international trade more difficult or expensive, such as tariffs or transportation costs. When trade costs increase, the price of goods in one country may become significantly different from the price in another country, widening the arbitrage band. This creates an opportunity for traders to buy low and sell high, increasing the volume of trade. However, higher trade costs also increase the risks and costs of trading, which can limit the volume of trade as well.

Increasing Trade Costs