Q. Consider, as a result of several dynamic factors associated with exposure to international competition, Albania's economy grew, and is now shown by the rightmost production possibility frontier in the Figure above. If its point of production with trade was point c, could 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 could this growth affect Albania's terms of trade? Its real income?

Answer: If point c is the production point with trade after that Albania has a comparative advantage in good B. Consequently from the shape of the new production likelihood frontier as compared to the original one this is clearly an export-biased growth. This ceteris paribus would be likely to worsen Albania's terms of trade. The terms of trade effect would once more ceteris paribus worsen its real income. Though the growth itself acts in the opposite direction.