1. Suppose Indonesia and China are trading partners. Indonesia initially exports palm oil to and imports lubricants from China. Using the standard trade model, explain how an increase in the relative price of palm oil—in relation to lubricant prices—would affect production and consumption of palm oil for Indonesia

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assuming that the taste for both goods is the same in both countries). If the income effect of price change of palm oil is greater than the substitution effect, what would happen to palm oil consumption in Indonesia?