Intricate Wiring Corp., based in Ohio, creates a brand new high-tech product. The demand for the product in the United States is high but very low or non-existent elsewhere. The company decides not to locate manufacturing facilities elsewhere and will simply meet the small foreign demand via exports. The theory that best explains the company's policy is
A) product life cycle theory.
B) mercantilism.
C) the Leontief paradox.
D) Heckscher-Ohlin theory.
E) free trade theory.

Question

Quizplus · Accepted Answer

Product life cycle theory suggests that a product's production location can change over time based on its stage in the life cycle. Initially, production is in the home country where demand is high, and as the product matures, production may move abroad. Since the demand is currently high only in the U.S., the company keeps production there.