Assuming that Canadian and French wines are substitutes in consumption,if the Canadian government imposes a quota on the amount of French wine allowed into Canada and the quota is set at a quantity below equilibrium,the price of French wine in Canada will _____ while the price of the Canadian-produced wine will _____.
A) increase;increase
B) increase;decrease
C) decrease;increase
D) decrease;decrease

Question

Quizplus · Accepted Answer

When the Canadian government imposes a quota on the amount of French wine allowed into Canada and the quota is set below the equilibrium, it creates a shortage of French wine in Canada. This results in an increase in the price of French wine in Canada due to increased demand and reduced supply. As a result of this price increase, Canadian consumers switch to Canadian-produced wine, which increases the demand for Canadian wine, leading to an increase in its price as well. Therefore, both French and Canadian wines' prices will increase in Canada.

Assuming That Canadian and French Wines Are Substitutes in Consumption,if