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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?

Answer :

Final answer:

Whether Country X should produce solar panels domestically or import them depends on various economic factors, including the cost-effectiveness and the terms of trade between furnaces and solar panels.

Explanation:

The decision for Country X to produce solar panels domestically or import them from another country depends on many factors, including the cost of producing solar panels domestically, the cost of producing furnaces, and the terms of trade. If it's more cost-effective to produce 2 furnaces domestically and trade them for 1 solar panel, rather than producing the solar panel domestically, then Country X should import the solar panels. Conversely, if the cost of producing a solar panel domestically is lower than the costs associated with producing 2 furnaces, then it's more economical for Country X to produce the solar panels locally.

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