Assume that Californian and Italian wines are substitutes in consumption. If the American government imposes a quota on the amount of Italian wine allowed into the United States, with the quota set at a quantity below the equilibrium quantity, the price of Italian wine in the United States will _____, while the price of California-produced wine will _____.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Question

Quizplus · Accepted Answer

When a quota is placed on Italian wine, reducing its available quantity below equilibrium, its price increases due to scarcity. As Californian and Italian wines are substitutes, the demand for Californian wine will also increase, leading to a price increase for Californian wine.

Assume That Californian and Italian Wines Are Substitutes in Consumption