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16 July, 07:14

Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots?

a) the demand curve for Merlot has shifted to the right faster than the supply curve has shifted to the right

b) the supply curve for Merlot has shifted to the right faster than the demand curve has shifted to the right

c) the demand curve and the supply curve for Merlot have both shifted to the lefft

d) the supply curve for Merlot has shifted to the right while the demand curve for Merlot has shifted to the left

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Answers (1)
  1. 16 July, 08:02
    0
    a) the demand curve for Merlot has shifted to the right faster than the supply curve has shifted to the right

    Explanation:

    As the income of consumers have increased that means that the buying capacity has increased, which contributes to increase in demand of the product.

    Further the raw material required to manufacture the product now cost less, accordingly the supply will also be increased.

    But the supply would only increase if the producers realize that the demand has increased.

    Accordingly, demand shall increase faster than the increase in supply.
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