Question

Suppose you are the manager of a California winery. How would you expect the following events to affect the market equilibrium price (up or down) you receive for a bottle of wine? Please state the shift (leftward or rightward) of demand or supply. a. The price of comparable French wines increases. b. One hundred existing wineries close in California. c. The price of a glass bottle increases significantly due to new government anti-shatter regulations. d. The average age of consumers increases, and older people drink less wine.

Answer 1

• Increase in price of comparable French wine which may also be considered a substitute, the demand curve for wine of California winery will go up. Thus the demand curve will shift to the right. The equilibrium price and quantity both will increase.
• Closing of existing wineries will reduce the market supply and thus the supply curve will shift to the left. The equilibrium quantity will fall and price will increase.
• The rise price of a glass bottle which may be considered as input for the Wine production will reduce the profitability for the wineries and thus the sellers will supply less at current price. The supply curve will shift to the left. The equilibrium quantity will fall and price will rise.
• Increase in average age will reduce the demand for wine. The demand curve will shift to the left. This will reduce the equilibrium price and quantity both.