Question

Two events occur simultaneously in the market for California wine: Event 1: The price of glass wine bottles falls because strict government regulations on anti-shatter glass containers are abolished by Congress. Event 2: The price of cheese increases. Using demand and supply analysis predict what is likely to happen to the equilibrium price of California wine and the equilibrium quantity of California wine.

a) Demand for California wine increases and supply of California wine increases, and the impact of these two simultaneous events is to increase equilibrium price and increase equilibrium quantity.

b) Demand for California wine increases and supply of California wine decreases, and the impact of these two simultaneous events is to decrease equilibrium price while the change in equilibrium quantity is indeterminate.

c) Demand for California wine decreases and supply of California wine decreases, and the impact of these two simultaneous events is to decrease equilibrium quantity while the change in equilibrium price is indeterminate.

d) Demand for California wine decreases and supply of California wine decreases, and the impact of these two simultaneous events is to increase equilibrium price while the change in equilibrium quantity is indeterminate. Demand for California wine increases and supply of California wine increases, and the impact of these two simultaneous events is to increase equilibrium quantity while the change in equilibrium price is indeterminate.

Answer 1

Answer-

Demand for California wine decreases and supply of California wine increases, and the impact of these two simultaneous events is to decrease equilibrium price while the change in equilibrium quantity is indeterminate.

reason-

Event 1 leads to increase in supply of California wine as the cost of production falls due to fall in price of glass wine bottle.

Event 2 leads to fall in demand for cheese as wine and cheese are complementary goods. So rise in price of cheese leads to fall in demand for cheese and fall in demand for cheese.

When demand falls and supply rises, Equilibrium Price falls and equilibrium Quantity is indeterminate.