Question

Raymond Vernon noticed that in the 1960s, the wealth and size of the U.S. market was a natural incentive to develop new consumer products. What theory did he propose based on this fact?

Answer 1

The correct answer is letter "D": product life-cycle.

Step-by-step explanation:

American economist Raymond Vernon (1913-1999) introduced the "International Product Life-Cycle" in 1966 to explain how goods and services are marketed, continue rising, to be forgotten later by consumers. The cycle consists of four (4) stages, according to Vernon:

1. The introduction stage: successful product development and marketing efforts.
2. The growth stage: increase in sales, decrease in production costs, and increase in revenue as a result of the product being noticed by consumers.
3. The maturity stage: broad recognition of the product, which brings competition and drives the company's efforts to remain stable.
4. The decline stage: saturation of the market, leading to a decline in sales and unpopularity of the product.

Answer 2

Product life-cycle theory

Step-by-step explanation:

The Product Life Cycle Theory was propounded by by Raymond Vernon to give explanation to the pattern observed foreign trade. The theory states that the production of parts and components of a product as well as the labor used in producing it are gotten from the point or country where the product was invented at the early staged of a product life-cycle. The production of the product will no longer be carried at the point or country where it was invented after it has been adopted and consumed in the international markets. In fact, there are some instances when the country that invented it will be importing the same product they invented.

The product life cycle is divided into three stages: New Product , Maturing Product , and Standardized Product.

An example is given of the United States as regards the invention, growth and production of the personal computer to explain these stages as follows:

1. New product stage: In this stage, production and consumed of the product are done in the US with no export trade.

2. Maturing product stage: In this stage, the methods to mass produce are developed and international demand from developed countries is growing making the US to be exporting the personal computer to the developed countries.

3. Standardized product stage: The production has shifted to and being carried in developing countries, e.g. China, from which the developed countries, including the US, then import the product.

As result of this cycle, Raymond Vernon then noticed that the wealth and size of the U.S. market was a natural incentive to develop new consumer products. Because, as the US develops new product which may likely be produced and exported back to the US, the wealth and size of the U.S. will increase.

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