Suppose you are the manager of a California winery. How would you expect the following events to affect the market equilibrium price you receive for a bottle of wine? Please state the shift (leftward or rightward) of demand or supply.
a. The price of comparable French wines decreases.
b. One hundred new wineries open in California.
c. The price of a glass bottle increases significantly due to new government anti-shatter regulations.
d. Researchers discover a new wine- making technology that reduces production costs.
e. The average age of consumers increases, and older people drink less wine.
To analyze the impact of each event on the market equilibrium price for a bottle of wine, we need to consider whether it affects the demand or supply of wine. Let's examine each event:
a. The price of comparable French wines decreases: This event implies a decrease in the price of substitute products. As a result, consumers may switch from French wines to California wines, leading to an increase in demand for California wines. Therefore, the demand for California wines would shift to the right, resulting in a higher market equilibrium price.
b. One hundred new wineries open in California: The opening of new wineries would increase the supply of wine in California. This increase in supply would likely lead to a leftward shift in the supply curve, as more wine is available in the market. Consequently, the market equilibrium price would likely decrease.
c. The price of a glass bottle increases significantly due to new government anti-shatter regulations: When the cost of production increases, which in this case is due to the increased price of glass bottles, the supply curve of wine would shift to the left. This shift indicates a decrease in supply, leading to a higher market equilibrium price.
d. Researchers discover a new wine-making technology that reduces production costs: The adoption of a new wine-making technology that lowers production costs would result in an increase in the supply of wine. With a larger supply, the supply curve would shift to the right, indicating a decrease in the market equilibrium price.
e. The average age of consumers increases, and older people drink less wine: This event suggests a decrease in the demand for wine by older consumers. As a result, the demand curve for wine would shift to the left, indicating a decrease in demand. Consequently, the market equilibrium price would likely decrease.
In summary, the effects of each event on the market equilibrium price are as follows:
a. The price of comparable French wines decreases: Rightward shift in demand, higher price.
b. One hundred new wineries open in California: Leftward shift in supply, lower price.
c. The price of a glass bottle increases significantly due to new government anti-shatter regulations: Leftward shift in supply, higher price.
d. Researchers discover a new wine-making technology that reduces production costs: Rightward shift in supply, lower price.
e. The average age of consumers increases, and older people drink less wine: Leftward shift in demand, lower price.