Question

2. Suppose you are the manager of a California winery. How would you expect the following events to affect the price you receive for a bottle of wine? Explain your answers.

a. The price of a comparable French wine decreases.

b. One hundred new wineries open in California,

c. The unemployment rate in the United States decreases.

d. The price of cheese increases.

e. The price of a glass bottle increases significantly due to new government antishatter regulations.

f. Researchers discover a new wine-making technology that reduces production costs.

g. The price of wine vinegar, which is madde from the leftover grape mash, increases.

h. The average age of consumers increases, and older people drink less wine.

Answer 1

a. A comparable french wine is a substitute for my bottle of wine. So, decrease in the price of the comparable french wine will decrease demand for my wine thus price will decrease for my bottle of wine.

b. Due to opening of one hundred new wineries, supply of wine will increase, which will reduce the price of wine in the market due to higher competition.

c. Due to decrease in the unemployment rate, more people will demand wine. So, demand for wine will increase. Thus price will increase.

d. Cheese and wine are complimentary goods. So, an increase in the price of cheese will reduce quantity demanded of cheese. This will reduce the quantity demanded of wine. Thus price of wine will decrease.

e. An increase in the price of glass bottle will increase cost of production of wine as wine is packed in glass bottles so supply of wine will decrease thus increasing its price.

f. Now, cost of production decreases, so supply of wine will increase. This will decrease the price of wine.

g. Due to increase in the price of wine vinegar, more wine will be produced to get more leftover grape mash. So, supply of wine increases. This will decrease the price of wine.

h. Now, due to less consumption of wine, demand for wine decreases. So, price of wine will decrease.