This question is about caviar and champagne. Recently, pollution has been a problem in the Volga River, where much of the world’s caviar originates. The sturgeons that live in these waters are laying fewer eggs than before.
A. What type of goods are caviar and champagne as two related goods? How are they related with respect to consumption and price and not income?
B. Within the supply and demand framework, show geographically the effect of pollution on the caviar equilibrium. What happened to equilibrium price and quantity?
C. In a separate graph, trace the effect on the market for champagne and explain what would happen to the champagne market equilibrium, using a supply and demand diagram. What happened to equilibrium price and quantity?