To answer the following questions, refer to the above figure, which depicts Albania before and after economic
Question:
To answer the following questions, refer to the above figure, which depicts Albania before and after economic growth in that country.
a) Before economic growth, suppose Albania refuses to engage in international trade for ideological reasons. To maximize its economic welfare, it would choose to produce at which point in the diagram above before economic growth?
b) Suppose Albania is interested in obtaining economic welfare gains from trade. The relative price PA/PB at point a is equal to 1, and the relevant international (world) relative price is PA/PB = 1/2. Albania would therefore choose to produce at which point (a, b, or c)? Given this additional information, in which good does Albania enjoy a comparative advantage?
c) Suppose Albania's economy grew after trade began and is now represented by the rightmost production possibility frontier in the figure above. Would you consider this growth to be export-biased or import biased? If Albania were a large country with respect to the world trade of A and B, how would this growth affect Albania's terms of trade? Its real income?
Financial and Managerial Accounting
ISBN: 978-1133940593
10th edition
Authors: Belverd E. Needles, Marian Powers, Susan V. Crosson