1) Theory of Comparative Advantage -
- Comparative advantage refers to an economy's ability to produce
goods and services at a lower opportunity cost than its trade
partners.
- The theory of comparative advantage introduces opportunity cost
as a factor for analysis in choosing between different options for
production.
- Comparative advantage suggests that countries will engage in
trade with one another, exporting the goods that they have a
relative advantage in.
- Absolute advantage refers to the uncontested superiority of a
country to produce a particular good better.
2) Imperfect Market Theory -
- Imperfect markets do not meet the rigorous standards of a
hypothetical perfectly or purely competitive market.
- Imperfect markets are characterized by having competition for
market share, high barriers to entry and exit, different products
and services, and a small number of buyers and sellers.
- Perfect markets are theoretical and cannot exist in the real
world; all real-world markets are imperfect markets.
- Market structures that are categorized as imperfect include
monopolies, oligopolies, monopolistic competition, monopsonies, and
oligopsonies.
3) Product Cycle Theory
- A product life cycle is the amount of time a product goes from
being introduced into the market until it's taken off the
shelves.
- There are four stages in a product's life cycle—introduction,
growth, maturity, and decline.
- The concept of product life cycle helps inform business
decision-making, from pricing and promotion to expansion or
cost-cutting.
- Newer, more successful products push older ones out of the
market.