Chapters 3 and 4: Trade Theory What is Comparative Advantage? What are the gains from trade?...

Chapters 3 and 4: Trade Theory

What is Comparative Advantage?
What are the gains from trade? Does this mean that trade benefits everyone?
What are the main phases of the Product Cycle and why do they matter?

Solutions

Expert Solution

Comparative advantage means that the production of a particular good has a lesser opportunity cost than another country.

Gains from trade are always mutual which means that trade helps both the participants if done correctly. So, if a country trades a product for which it has a comparative advantage at a higher than the opportunity cost rate, the country will benefit from the trade. Yes, since trade is a win-win game, it helps everyone.

Product cycle generally has 4 stages viz. introduction, growth, maturity and decline. It is a marketing term, introduction is the phase when the product enters the market, growth is the phase when there is a rise in the sale i.e people are buying it more or it is becoming popular. Maturity is the stage when it has grown at some point when there is no further rise in sale but it is selling at a stable rate. Decline is the stage when the product starts to lose tract, thus the sale of it diminishes.

Rahul Sunny answered 1 year ago

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