Which trade theory suggests that comparative advantage tends to shift from one nation to another as a product matures?
A) Interindustry trade theory
B) Intraindustry trade theory
C) Product life cycle theory
D) Overlapping demand theory

Question

Quizplus · Accepted Answer

The Product life cycle theory suggests that comparative advantage tends to shift from one nation to another as a product matures. Initially, a new product is developed and produced in the country where it was invented (typically a developed country). But as the product becomes standardized and more cost-effective, production shifts to developing countries where labor is cheaper. Eventually, even these countries may lose their comparative advantage as new products are developed and produced in different locations, starting the cycle again.

Which Trade Theory Suggests That Comparative Advantage Tends to Shift