Answer to Question #281109 in Microeconomics for Ali Mammadov

Question

The world price of wine is below the price that would prevail in France in the absence of trade. a. Assuming that French imports of wine are a small part of total world wine production, draw a graph for the French market for wine under free trade. Identify consumer surplus, producer surplus and total surplus in an appropriate table. b. Now suppose that an outbreak of phyloxera (a sap sucking insect which damages grape vines) in California and South America destroys much of the grape harvest there. What effect does this shock have on the world price of wine? Using your graph and table from part (a), show the effect on consumer surplus, producer surplus and total surplus in France. Who are the winners and losers? Is France better or worse off?

Answer 1

When the global value falls underneath the equilibrium market, which indicates that local supply will be lower than native consumption, the supply gap will be filled by imports.

Consumer surplus, producer surplus and total surplus in an appropriate table.

The international price is lower than the price that corresponds to the junction of Canada's local demand and supply models. Because Canada interacts the with rest of the world and has no influence on world prices, the price level is also the price in Canada.