Question

Demonstrate how supply and demand determine the price and quantity exchanged of goods and services. On September 6, 2007, the Des Moines Register's Business Section featured the article Wine Lovers have such fun, they pay to help harvest grapes. The article noted the number of wineries in Iowa increased significantly during the 1990s. It also discussed how Summerset Winery uses volunteers to harvest some of their grapes. The volunteers pay $20.00 for the experience of harvesting grapes. They also receive a meal, a t-shirt, and the opportunity to stomp some grapes (that's the fun part) Now let's analyze the determinants of demand that explain this increase in the demand for stomping graph and for wine. Our course textbook lists five reasons why the demand might change (why the demand curve might shift) including: (1) income; (2) tastes and preferences; (3) number of buyer; (4) expectations; and (5) income Which determinants of demand might account for this increased interest in stomping grapes and drinking wine?

Answer 1

Now, according to the demand and supply model price will adjust to equilibrate the demand and the supply of a good, => if there is an excess demand, => if “D > S”, => price will increase to equilibrate the “D” and “S”. Similarly, if there is an excess supply, => if “D < S”, => price will decrease to equilibrate the “D” and “S”, => at the equilibrium “D=S”.

Now, in this given problem there are five determinant of demand for a particular good these are “Income”, “Test and preference”, “Numbers of buyer”, “Future Expectation” and the “Price of other good”.

Here in this given problem the income of the people got increased in that particular point and the numbers of people of wine lover also got increased. So, here for this particular example of increase in the demand for “stomp grapes” the possible reason are “the increase in income”, “test and preference” and “the numbers of buyers”.

So, here let’s assume that “D1” was the initial demand and “S1” was the initial supply of stomping grapes and for wine. So, the initial equilibrium price and the quantity traded is given by “P1” and “Q1”. Now, as the “income”, “numbers of buyer” increases and the “test and preference” of the people got change towards the wine the demand curve shifts to “D2”, => given the supply curve “S1” the new equilibrium is “E2”, => the equilibrium price and the quantity traded increases.