1. Production Possibilities (13 points) It has been determined that Spain and Serbia can produce the following combinations of consumer and capital goods. Spain Serbia Option Consumer Goods Capital Goods Consumer Goods Capital Goods A 540,000 0 140,000 0 B 405,000 15,000 105,000 5,000 C 270,000 30,000 70,000 10,000 D 135,000 45,000 35,000 15,000 E 60,000 0 20,000 Complete parts a, b, and c. a. Graph the production possibilities curve for both nations on separate graphs with capital goods on the x-axis in each case. b. Does the Law of Increasing Opportunity Costs hold for Serbia? Explain why or why not. C. If Spain wanted to experience higher levels of economic growth over the next few years, would they be better off choosing option B (a combination of 15,000 capital goods and 405,000 consumer goods) or option D (a combination of 45,000 capital goods and 135,000 consumer goods)? Explain. 2. Trade (22 points). Use the information from question #1 to answer this question. Complete parts a, b, c, and d and either parts e and f OR part . a. What is the cost ratio of capital goods to consumer goods in Spain? What is the cost ratio of capital goods to consumer goods in Serbia? b. Which nation has a comparative advantage in the production of capital goods? Which nation has a comparative advantage in the production of consumer goods? Explain. c. Solve for a terms of trade ratio that will be mutually beneficial for both nations so that they will want to engage in trade with one another. d. Using the terms of trade ratio you found in part c, graph the trading possibilities line for Spain on its PPC graph from question #1, making sure to clearly label the axes to show the quantities of both goods that Spain will be able to consume once it engages in trade with Serbia. Complete either parts e and f together OR part g alone. e. Which nation has an absolute advantage in the production of capital goods? f. Which nation has an absolute advantage in the production of consumer goods? Search L O