Suppose the U.S.government imposes a binding quota on the number of Japanese-made cars allowed into the United States.Assuming that Japanese-made cars and U.S.-made cars are substitutes in consumption,we would expect the price of Japanese cars to _____ and the price of U.S.-made cars to _____.
A)increase;increase
B)increase;decrease
C)decrease;increase
D)decrease;decrease

Question

Quizplus · Accepted Answer

Imposing a binding quota on Japanese-made cars reduces their supply in the U.S. market, leading to an increase in their price. Since these cars are substitutes, the demand for U.S.-made cars will increase as consumers look for alternatives, driving up their price as well.