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?