Question

If the U.S. government imposes a quota on the amount of French wine allowed into the United States (the quota is set at a quantity below equilibrium), the price of French wine in the United States will ________ while the price of U.S.-produced wine will ________.

Answer 1

Answer:

1) Increase 2) Increase

Explanation:

The price of the both would definitely increase.

Answer 2

Answer:

first blank: Increase

Second blank: Increase

Explanation: The price of French wine will increase due increase of import duties on the wine, which can leads to scarcity of the product.

However, there is also an increase in the US produced wine, due to scarce of French wine (a competitor), thereby creating a monopolistic market for US based wine. Hence, the price of US produced wine will increase due to higher demand.