Question

The graph input tool Some questions alow you to interact Indirectly with a graph by manipulating a corresponding table of entries. In this type of question, you will not be graded on the final appearance of the graph, but rather you will use the graph to help you answer the questions that follow. white backgrounds. Once you have selected a field, you can either enter a new existing value by selecting the arrows(+to increase and - to decrease). You can exit the entry field by hitting Enter (or Return) rou can adjust the values in the accompanying table for fields with velue or adjust the on your next to the selected field keyboard or by selecting a place elsewhere on the problem. To reset a field to its starting value, select the circular refresh arrow that appears Experiment with entering different values in the editable fields. Observe what changes take place on the graph itself and also in the uneditable fields in the table. Don't worry about understanding the economics behind the question, just make sure you understand how to manjpulate the values on che graph Graph Input Tool Market for Wine (Dollars per bottle) Price 48.00 ntity Supplied housands of 36 Thousands of 30 Surplus sands of Shortage Thousands of Demand Shifter Supply Shifter Price of of Grapes 6.00

Answer 1

We have a primary market for Wine given in the question

There are two other products, Champagne which is substitute to Wine and grapes which is complement to Wine (since it is used in the production of the wine).

a) If price of Champagne decreases from 45 to 33, more people would be willing to substitute Champagne for wine which is still sold at a higher price of 48. Thus, demand for Wine decreases. Supply curve is unaffected. Green line is unaffected, Quantity demanded decreases, quantity supply remains same. Thus, the surplus increases. There is still no shortage.

b) If price of Wine increases from 48 to 60, demand curve and supply curve remains unchanged. But green line moves up to 60. Quantity demanded decreases (moves to zero) and quantity supplied increases to 180. Surplus increases. There is still no shortage.

c) If price of grapes decrease from 6 to 3, more grapes would be available to the firms for production of wine. Hence the supply curve shifts towards right. Demand curve remains unaffected. Green line remains unadjusted. Quantity demand remains same but quantity supplied increases. Thus surplus increases. There is still no shortage.