Studies have shown that drinking one glass of red wine per day may help prevent heart disease.Assume this is true.Suppose that a fungal disease destroys a large portion of the grape harvest of B.C.vineyards.In the market for red wine, these two developments would
A)increase demand and increase supply, resulting in an increase in the equilibrium quantity and a decrease in the equilibrium price of red wine.
B)increase demand and decrease supply, resulting in a decrease in both the equilibrium quantity and the equilibrium price of red wine.
C)increase demand and decrease supply, resulting in an increase in the equilibrium price and an uncertain effect on the equilibrium quantity of red wine.
D)increase demand and decrease supply, resulting in an increase in both the equilibrium price and the equilibrium quantity of red wine.

Question

Quizplus · Accepted Answer

The statement about red wine preventing heart disease would increase the demand for red wine, while the fungal disease destroying a large portion of the grape harvest would decrease the supply of red wine. This would result in an increase in the equilibrium price of red wine, but the effect on the equilibrium quantity is uncertain as it would depend on the relative magnitudes of the increase in demand and decrease in supply.

Studies Have Shown That Drinking One Glass of Red Wine