Scenario 5-6
Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar.
-Refer to Scenario 5-6. What would we expect to observe in the caviar market?
A) Equilibrium prices and quantities will increase.
B) Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic.
C) Total revenues to caviar firms will increase if the demand for caviar is inelastic.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

The government's increased border patrols and destruction of illegal caviar would reduce the supply of caviar in the market. If the demand for caviar is inelastic, a decrease in supply would lead to an increase in equilibrium prices and total revenue to caviar firms despite the reduction in the quantity sold. However, if the demand for caviar is elastic, the increase in prices may not offset the decrease in quantity sold, leading to a decline in total revenue to caviar firms. Therefore, we cannot conclude that all of the above are correct.

Scenario 5-6 Suppose the Government Is Concerned About Firms in the United