The market for wine in Okanagan wine is initially in equilibrium represented by the intersection of...

The market for wine in Okanagan wine is initially in equilibrium represented by the intersection of the supply and demand curves. Beer is a close substitute for wine; cheese and wine are complements. Use demand and supply graphs to analyze the effect of each of the following (separate) events on the equilibrium price and quantity in the Okanagan wine market. Draw a separate graph for each event (5).

a) The income of consumers falls (wine is a normal good).

b) Weather problems destroy part of the grape crop for making wine.

c) A new invention reduces the cost of producing cheese.

d) A new fermentation technique is invented that reduces the cost of producing wine.

e) The cost of producing both wine and beer increase dramatically.

Expert Solution

NOTE: In all cases explained below, the Okanagan wine market is initially at equilibrium point A (the point at which the supply curve S and demand curve D intersect), with intial equilibrium price P0 and equilibrium quantity Q0.

Rahul Sunny answered 2 years ago

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