In recent years the cost of producing wines in Canada has increased, largely due to rising rent for vineyards.At the same time, an increasing number of Canadians say they prefer wine to beer.Which of the following best explains the effect of these events on the wine market?
A)The supply curve has shifted to the left and the demand curve has shifted to the right.As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
B)Both the supply and demand curves have shifted to the right.As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
C)Both the supply and demand curves have shifted to the right.As a result, there has been an increase in both the equilibrium price and the equilibrium quantity.
D)The supply curve has shifted to the left and the demand curve has shifted to the right.As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.

Question

Quizplus · Accepted Answer

The increase in the cost of producing wines in Canada due to rising rent for vineyards indicates a leftward shift in the supply curve. On the other hand, an increasing number of Canadians preferring wine over beer implies a rightward shift in the demand curve. As a result, the equilibrium quantity would decrease due to the leftward shift in supply, but the effect on equilibrium price is uncertain as it would depend on the relative magnitudes of the shifts in supply and demand curves. However, the equilibrium price would likely increase due to the combined effect of the leftward shift in supply and rightward shift in demand. Therefore, option D is the best choice.

In Recent Years the Cost of Producing Wines in Canada