High intranational transport costs can have what effect on import price advantages for distant consumers?

• A. They can entirely eliminate any price advantages.
• B. They can enhance price advantages.
• C. They have no effect.
• D. They only affect domestic prices.

Answer: (A)

When distant consumers evaluate imported goods, they don’t just pay the price abroad; they pay the total delivered cost, which includes intranational transport to the final destination. If internal shipping costs are high, they add a lot to the total, potentially wiping out the savings from buying the item abroad. In fact, those inland costs can be large enough to make the delivered price of an imported good higher than or equal to the price of a locally produced alternative, eliminating any price advantage that importation might have had. That’s why high intranational transport costs can entirely erase import price advantages for distant consumers.