The correct answer is b. dynamic, long run trade theory. The product cycle theory of trade, also known as the international product life cycle theory, is fundamentally a dynamic and long-term trade theory that explains how the international trade patterns of products evolve over time. Let’s explore in detail why this answer is correct and why the other options are not:

Correct Answer (b): Dynamic, Long Run Trade Theory:

The product cycle theory of trade was developed by economist Raymond Vernon in the 1960s to describe the life cycle of a product’s international trade. It posits that a product goes through distinct stages in its life cycle, each with different trade patterns and characteristics.

The theory accounts for how products transition from being produced and exported primarily by the country where they were invented (typically a developed country) to becoming standardized and produced in multiple countries, including developing ones.

Here’s a brief overview of the stages in the product cycle:

1. Introduction Stage:

In this initial stage, a new product is invented, typically in a developed country. During this phase, the product has high research and development costs, and it is primarily produced and exported by the country of origin. International trade in this product is limited.

2. Growth Stage:

As the product gains acceptance and demand grows, it enters the growth stage. The original inventing country continues to be the primary producer and exporter, but other developed countries may start production. Trade in the product begins to expand.

3. Maturity Stage:

In this stage, the product reaches maturity, and its production and trade become more widespread. It is now produced not only in developed countries but also in developing nations. The original inventing country’s role in trade diminishes as other countries start exporting the product.

4. Standardization and Decline Stage:

The product reaches a point of standardization, where it is a mature, widely available commodity. Production and trade occur in multiple countries, including both developed and developing nations. The original inventing country may no longer be a significant player in the trade of this product.

The product cycle theory is dynamic because it considers the evolution of a product’s trade patterns over time. It is a long-run theory because it focuses on how products’ international trade changes as they progress through their life cycles.

This theory is essential for understanding how trade dynamics can shift over extended periods and how countries’ comparative advantages may change as products mature and become commoditized.

Now, let’s explain why the other options are not correct:

a. Static, Short Run Trade Theory:

The product cycle theory is not static or short-run in nature. It does not describe the immediate or short-term dynamics of trade. Instead, it offers a framework to analyze how trade patterns change over a more extended period, taking into account the various stages in the life cycle of a product.

It emphasizes that trade dynamics evolve as products transition from introduction to standardization and decline. Thus, this option is not correct because it does not align with the nature of the product cycle theory.

c. Zero-Sum Theory of Trade:

The concept of zero-sum trade theory suggests that trade between nations is a fixed-sum game, where one country’s gain equals another’s loss. However, the product cycle theory is not a zero-sum theory of trade.

Instead, it focuses on the idea that international trade can be mutually beneficial and that countries can benefit from participating in the production and trade of products at various stages in their life cycles.

As products mature and become standardized, more countries can participate in their production and trade without necessarily causing losses to others. Therefore, this option is not correct because it mischaracterizes the nature of the product cycle theory.

d. Negative-Sum Theory of Trade:

A negative-sum theory of trade implies that international trade results in overall economic losses for all participating countries. This contradicts the fundamental principles of trade theory, which emphasize that trade can lead to mutual gains through specialization, comparative advantage, and efficient resource allocation.

The product cycle theory, in particular, does not advocate for negative-sum outcomes. Instead, it illustrates how trade patterns can evolve to benefit multiple countries over the long run, which is inconsistent with the idea of negative-sum trade. Thus, this option is not correct because it inaccurately describes the nature of the product cycle theory.

In conclusion, the correct answer is b. dynamic, long-run trade theory because the product cycle theory explains the evolution of international trade patterns as products progress through their life cycles, from introduction to standardization and decline.

It is not static or short-run in nature, and it does not support zero-sum or negative-sum trade theories. Understanding the dynamic nature of international trade is essential for policymakers, businesses, and economists to make informed decisions about trade, investment, and economic development.