Suppose Albania is exporting product B, and experienced economic ...

[Sportsfan2111]

Suppose Albania is exporting product B, and experienced economic growth biased in favor of product B as seen in the figure above. We are also told that Albania's new consumption point is at point d.
 
  Would you still consider the economic growth, which took place biased in favor of B? If Albania were a large country how would this growth affect its terms of trade?

Question 2

Refer to the table above. For trade to occur along the lines of comparative advantage, wages in A relative to wages in B (measured in the same currency)
 
  A) must be at least twice but less than 3 times as great.
  B) must be less than three times as small.
  C) must be greater than 2 but less than 3.
  D) Need more information to answer.

[BUTTHOL369]

Answer to Question 1

This is a relatively difficult case. On the one hand, the growth is still technically export biased. However, Albania's consumption clearly shifted in favor of its import product, A. In this case, the deterioration in the terms of trade would be much more pronounced than before, and may lead to a case of immiserizing growth. However, for this to occur, there must have been a major shift in the taste patterns (the old community indifference map is not longer applicable). Therefore, when we try to judge the direction and magnitude of the welfare change, we are comparing the old versus new taste preferences, which raises the classic index number problem.

Answer to Question 2

A

[Sportsfan2111]

Thank you

[BUTTHOL369]

Happy to help you