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fighter on 07 August 2014
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Sharu said:
fighter said:

On the other hand it raises prices in russia tremendously and the production quality is bound to drop in order to meet the demand.

Please explain me, why the prices will go up and quality will drop?

if the ban had been on only a given food product among food products the demand would be inelastic

example : no enough apples -> people buy more pears instead -> not much impact on prices

so on the curve below the equilibrium of apples will move from right to left (and the index of P rises less than 1 times the index of Q lowers)

 

 

but since the food ban concerns the entire food offer you can't substitute food with anything else than food - so russia will follow the typical "inelastic" curve

again - equilibrium point moves from right to left (and the index of P rises more than 1 times the index of Q lowers)

 

http://www.investopedia.com/university/economics/economics4.asp

 

For the quality issue it's simply that competition will not be a problem for either farms and productions nor for distribution. Whatever they get they know they will sell.