International trade theory has traditionally been cast in an idealized setting, with numerous assumptions, where the flow of goods is determined by static comparative advantage. In the Ricardo-Torrens theory, differences in technology across countries affect labor productivities, pretrade prices, and thus determine comparative advantage and trade. In the Heckscher-Ohlin theory, differences in relative factor endowments affect pretrade relative factor prices, relative costs of production, and thus determine comparative advantage and trade. Originally, such models were formulated for a two-country world, but with the addition of a third country it became clear that under certain circumstances multilateral comparisons may be appropriate (see Ronald Jones; Anne Krueger). Empirical verifications of both theories have been quite extensive. Most of the tests have been bilateral, one country to another or one country trading with the rest of the world. In general the results have been, at best, very mixed. The explanations for the unexpected results have involved such theoretical modifications as the need to introduce natural resources explicitly, to distinguish between new and standard commodities, to account for heterogeneity of factors and products, to include barriers to trade and so on. In all this work, the basic existence of competitive markets has been an accepted assumption: that is, a country will face one import price for a homogeneous product because competition will drive out inefficient exporters. However this is a testable proposition; specifically, does a country buy its imports from the low cost producer and, if not, is the overpayment significant? The a priori reasons for the existence of any such trade inefficiencies in import prices or price divergences are many. One possible explanation is that there exist variations in unit export prices for an exporter. Gary Hufbauer and J. P. O'Neill in examining unit values of U.S. machinery exports suggested several explanations for export price differences for a given exporter:

Abstract Many tax advisors indicate that tax-exempt bonds, such as municipals, are very attractive for people in high tax brackets; for such people, the tax exemption of interest payments can be significant. The U.S. Congress, being aware of the obvious tax loophole, has legislated against such an advantageous combination. The general rule, then, is that a tax-payer's interest payments will not be tax-deductible if the debt has been incurred to finance the purchase of tax-exempt bonds. However, there are several important exceptions to this rule. The most obvious, is the fact that the rule does not apply to interest on securities which are partially tax-exempt. An individual taxpayer simultaneously could hold tax-exempt bonds, while at the same time deducting interest charges from gross income to reach his or her taxable income. The results of this study indicate three major points. First, given, the present tax treatment of municipals, many taxpayers can profit by borrowing at available rates and investing in lower yielding municipals. Second, the profitable tax bracket has been lowered as the general level of interest rates has risen. Finally, given that the U.S. tax structure is based on nominal rather than real income, inflation increases an individual's marginal tax bracket; thus, more people will find the acquisition of municipals profitable.