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

Question

Quizplus · Accepted Answer

A binding quota on Japanese-made cars reduces their supply in Canada, leading to an increase in their price. As Japanese and Canadian cars are substitutes, the reduced availability and higher price of Japanese cars increase the demand for Canadian cars, causing their price to also increase.

Suppose That the Canadian Government Imposes a Binding Quota on the Number