Suppose Russia produces caviar that sells for $15 a can, and the United States produces caviar at a price of $20 per can. If all caviar were the same and there are no barriers to trade, then

Question

Quizplus · Accepted Answer

Given the principles of supply and demand in a free market without trade barriers, consumers would naturally gravitate towards the cheaper option, which is the Russian caviar at $15 a can. This would increase demand for Russian caviar and potentially decrease demand for the more expensive U.S. caviar, leading to a new equilibrium price that falls between the two original prices. This is because sellers in the U.S. would likely lower their prices to become more competitive, while Russian producers might raise theirs due to increased demand, until an equilibrium is reached where supply meets demand at a price agreeable to both parties.

Suppose Russia Produces Caviar That Sells for $15 a Can