Question

Assuming that u.s. and french wines are substitutes in consumption, if the u.s. government imposes a quota on the amount of french wine allowed into the united states and the quota is set at a quantity below equilibrium, the price of french wine in the united states will _____ while the price of the u.s.-produced wine will _____.

Answer 1

If the US government imposes a quota on wines from France, the prices of French wines will inevitably go up because of the law of offer and demand. When the demand for a product is higher than the offer, the prices inevitably go up. The good thing about this is that the price of American wines will go down.