Empirical studies flnd a strong positive relationship between a country’s per-capita income and price level of tradable goods. Among alternative explanations of this observation, I focus on variable mark-ups by flrms. Mark-ups that vary with destinations’ incomes are evident from a clothing manufacturer’s online catalogue featuring unit prices of identical goods sold in 24 countries. Such price discrimination on the basis of income suggests that flrms exploit lower price elasticity of demand for identical goods in richer countries. In order to capture that, I introduce non-homothetic preferences in a model of trade with product difierentiation and heterogeneity in flrm productivity. The model helps bring theory and data closer along a key dimension: it generates positively related prices and incomes, while preserving desirable features of flrm behavior and trade ∞ows of existing frameworks. Quantitatively, the model suggests that variable mark-ups can account for as much as a third of the observed positive relationship between prices of tradables and income across a large sample of countries. JEL Classiflcation: E31, F12, F15, L11