Questions: Narrator That's right! A trade surplus exists when a country exports more than it imports. Ashley You know, l'm looking at data showing some of the products we import and I'm confused. I thought the United States used to produce products like televisions and semiconductors, but it looks like we now import them instead. Do we have a theory that explains that situation? Mercantilism Theory of overlapping demand Product life cycle theory Absolute advantage theory Submit

The answer is the third one: Product life cycle theory.

Explanation for each option:

1. Mercantilism: This is an economic theory that emphasizes the importance of accumulating monetary reserves through a positive balance of trade, especially of finished goods. It does not specifically address why a country might shift from producing to importing certain products over time.

2. Theory of overlapping demand: This theory, proposed by economist Staffan Burenstam Linder, suggests that countries with similar levels of income will have similar consumer demands, leading them to trade similar goods. While it explains trade patterns based on consumer demand, it does not directly address the shift from production to importation of specific products.

3. Product life cycle theory: This theory, developed by Raymond Vernon, explains how a product's production location can shift over time. Initially, new products are produced and exported by the country that developed them. As the product matures and becomes standardized, production may shift to other countries where production costs are lower, and the original country may start importing the product. This theory directly explains why the United States might have shifted from producing to importing products like televisions and semiconductors.

4. Absolute advantage theory: Proposed by Adam Smith, this theory suggests that countries should produce and export goods in which they have an absolute advantage (i.e., they can produce more efficiently than other countries) and import goods in which other countries have an absolute advantage. While it explains trade based on efficiency, it does not specifically address the dynamic shift in production and importation over time.

Summary: The Product life cycle theory best explains why the United States might have shifted from producing to importing products like televisions and semiconductors. This theory accounts for the changes in production locations as products mature and become standardized, leading to shifts in trade patterns.