The graph to the right depicts an economy, Home, which produces flowers and soybeans. Its production...

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The graph to the right depicts an economy, Home, which produces flowers and soybeans. Its production possibilities frontier is shown as TT. One of Home's isovalue lines is also shown as VV. Home exists and trades with a second country, Foreign which also produces flowers and soybeans. Suppose that (P/Ps) has increased. Then, A. the income effect leads to an increase in consumption of flowers and soybeans while the substitution effect causes fewer flowers to be consumed and more soybeans to be consumed. B. the substitution effect leads to a decrease in consumption of flowers and soybeans while the income effect causes more flowers to be consumed and fewer soybeans to be consumed. C. the substitution effect leads to an increase in consumption of flowers and soybeans while the income effect causes fewer flowers to be consumed and fewer soybeans to be consumed. D. the income effect leads to a decrease in consumption of flowers and soybeans while the substitution effect causes fewer soybeans to be consumed and more flowers to be consumed. Ⓐ____ Trade in the Standard Model (Home) Soybean Production IC TT Flower Production VV The graph to the right depicts an economy, Home, which produces flowers and soybeans. Its production possibilities frontier is shown as TT. One of Home's isovalue lines is also shown as VV. Home exists and trades with a second country, Foreign which also produces flowers and soybeans. Suppose that (P/Ps) has increased. Then, A. the income effect leads to an increase in consumption of flowers and soybeans while the substitution effect causes fewer flowers to be consumed and more soybeans to be consumed. B. the substitution effect leads to a decrease in consumption of flowers and soybeans while the income effect causes more flowers to be consumed and fewer soybeans to be consumed. C. the substitution effect leads to an increase in consumption of flowers and soybeans while the income effect causes fewer flowers to be consumed and fewer soybeans to be consumed. D. the income effect leads to a decrease in consumption of flowers and soybeans while the substitution effect causes fewer soybeans to be consumed and more flowers to be consumed. Ⓐ____ Trade in the Standard Model (Home) Soybean Production IC TT Flower Production VV

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The detailed answer for the above question is provided below The correct answer is D The income effect leads to a decrease in consumption of flowers and soybeans while the substitution effect causes f... View the full answer