Question

1) You own an American company selling a product in Russia and the Russian Government passes a law banning all foreign owned companies from advertising in Russia. Using the concepts, we have studied, what would happen to your product and the market for this product?

2) If the market price of a product is above equilibrium, what must be happening? Will the problem solve itself? How can the price above equilibrium become permanent?

3) If the price of cars falls how will automobile manufacturer's respond?

4) Pollution in many parts of the world is reducing the Sturgeon population which means the amount of caviar will be reduced. How does Pollution impact the price of Caviar and Champagne?

Answer 1

1. With a restriction on advertising, the product will not be able to reach the prospective customers effectively since advertising plays an important role in changing the preferences of a consumer.

With a ban on advertising, the demand for the product will behave negatively (compared to what the demand existed earlier).

Thus, there will be a decline in the demand for the product.

With the supply of the product remaining unchanged, a fall in demand for the product will lead to a decline in the market price, given that there are not enough buyers for the good.

Therefore, there will be a fall in the price of the product, given a ban on advertising.

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