Supply and Demand for French Wine - Exercise

You may wish to do these exercises with pencil and paper. Once you're finished click play to see a video explanation.

1. Sketch a supply curve and demand curve for French wine and show an equilibrium price.  Be sure to label the axes.

2. Now show on your diagram a fall in demand as consumers switch to wine from Australia, South America and elsewhere. Show the effect on both price and output.  Can you see why some producers are leaving the industry?
3. Suppose we represent the demand curve (D) as P= 100-4Q, where P is price in euros and Q is quantity in litres, and that we represent supply (S) as P=  40+2Q.  Find equilibrium price and quantity without drawing a sketch of the supply and demand curves.
4. If the price of wine falls by 10% and the quantity demanded increases by 5% ceteris paribus, find the value of the elasticity of demand
Last modified: Wednesday, March 7, 2012, 1:43 PM