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Supply and demand of a winery

1. Suppose you are the manager of a California winery. How would you expect the following events to affect the demand and/or the quantity demanded for your product? Briefly explain.

a. The price of comparable French wines decreases.
b. One hundred new wineries open in California.
c. The unemployment rate in the US decreases.
d. The price of cheese increases.
e. The price of a glass bottle increases significantly due to new government anti-shatter regulations.
f. Researchers discover a new wine-making technology that reduces production costs.
g. The price of wine vinegar, which is made from the leftover grape mash, increases.
h. The average age of consumers increases, and older people drink less wine.

Solution Preview

a. The price of comparable French wines decreases.

This is a substitute, that means that the demand for California wines decreases... the demand curve for the winery will shift right (at every price they will buy less). The equilibrium price will go down and the quantity demanded will decrease.

b. One hundred new wineries open in California.

The total number of suppliers of the product has gone up, they are all substitutes for your product and there has been no change in industry demand. The industry supply has shifted left, price has decreased, more quantity is produced. However, for you, the little winery, the increase in competition has ...

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