Question

Suppose a news article reports, “Poor wine-grape harvests in France have brought
financial gains to Australian winemakers. Sales of Australian wines in France are
booming and wine prices are the best ever”
a) How has the market for French wines been affected by the poor harvest?
b) How has the change in the French wine market affect the market for Australian
wines in France?
NOTE: In your answer, include the adjustment process of the market moving
towards a new equilibrium.

Answer 1

A)b)as Australian wines are substitute of French wines , as prices french wines Increases ,demand of Australian wines Increases and demand curve shifts from DD to D'D'. And new demand curve D'D' intersect supply curve of Australian wines at point E1 . At new equilibrium point price and QUANTITY of Australian wines is higher than initial equilibrium price and quantity.