Answer to Question #102224 in Macroeconomics for Mohit Badiyani

Question

an early frost destroys a large percentage of the grape crop in British Columbia, how would this be expected to affect the market for Canadian wine, the market for beer, a substitute good, and the market for cheese, a complementary good?

Answer 1

for Canadian wine, the supply will decrease (the supply curve will shift to the left). The equilibrium price will increase, and the number of goods sold will fall. As Canadian wine prices rise, beer demand will increase (the demand curve shifts to the right) as it replaces wine. Both the equilibrium price and the amount traded for beer will increase. As Canadian wine prices rise, the demand for cheese will decrease as it complements wine. Both the equilibrium price and the amount sold for cheese will fall.