Assuming that U.S.and French wines are substitutes in consumption,if the U.S.government imposes a quota on the amount of French wine allowed into the United States and the quota is set at a quantity below equilibrium,the price of French wine in the United States will _____ while the price of the U.S.-produced wine will _____.
A)increase;increase
B)increase;decrease
C)decrease;increase
D)decrease;decrease

Question

Quizplus · Accepted Answer

Imposing a quota on French wine below the equilibrium quantity will reduce its supply, increasing its price. Since U.S. and French wines are substitutes, the demand for U.S. wine will increase as consumers switch from the now more expensive French wine, leading to an increase in the price of U.S.-produced wine as well.

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