In answering the question, you should emphasize the line of reasoning that generated your results, it is not
enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining
your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show
directional changes.
Country X and Country Y are trading partners, and both produce furnaces and solar panels. The countries can
produce the following amounts using equal amounts of resources.
Country X: 6 furnaces or 8 solar panels
• Country Y: 6 furnaces or 12 solar panels
a. Which country has an absolute advantage in producing solar panels?
b. Calculate the opportunity cost of a furnace in Country Y.
c. Which country has the comparative advantage in producing furnaces? Explain.
d. If the terms of trade were that 2 furnaces are exchanged for 1 solar panel, should Country X produce solar
panels domestically or import solar panels from Country Y?

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topeadeniran2 topeadeniran2 · Answer 1 · 2022-01-19T12:22:00+01:00

Based on the information given, it can be noted that Country Y has an absolute advantage in the production of solar panels.

In this case, country Y can produce more solar panels than country X. Therefore, it has an absolute advantage.

The opportunity cost of a furnace in Country Y will be 2 solar panels per furnace. This is what has to be foregone.

Also, it should be noted that country X has a comparative advantage in producing furnaces.

Lastly, when the terms of trade were that 2 furnaces are exchanged for 1 solar panel, Country X should produce solar panels domestically.

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