Skip to content

CA Foundation · Business Economics · International Trade

Raymond Vernon's product life cycle theory of international trade explains that a new product is typically:

According to Vernon's product life cycle theory, a new product is first made and exported by the innovating, usually advanced, country. As it matures and becomes standardised, production tends to shift to lower-cost countries, which may later export it back to the original innovator.

  1. AFirst produced and exported by the innovating country, and later production may shift to lower-cost countries as the product maturesCorrect
  2. BFirst produced only in low-wage countries and then exported to developed countries
  3. CTraded only when governments impose tariffs on it
  4. DProduced identically in all countries from the start

Explanation

Vernon said a new product is introduced in the innovating, usually advanced, country, which exports it. As the product becomes standardised, production moves to lower-cost countries, which may then export it back. Option B reverses the sequence.

Did you get it right without looking?

One question tells you little. A timed set on International Trade shows your real accuracy, how long you take and where you lose marks.

Practise International TradeFree diagnostic mock

More International Trade questions