If a Drought Destroyed Half of the Western Cape Wine

question 31

Multiple Choice

If a drought destroyed half of the Western Cape wine crop at a time when the health benefits of red wine were being well publicised, economists would expect that in the market for wine

• A) quantity exchanged would rise but the change in price is uncertain without further information.
• B) price would rise but the change in quantity exchanged is uncertain without further information.
• C) both price and quantity exchanged would rise.
• D) price would rise and quantity exchanged would fall.

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Definitions:

Subsidy

A subsidy is a financial contribution provided by the government or a public body to support businesses, consumers, or sectors, reducing the price of goods or services.

Supply Function

A supply function is a mathematical relation that shows how the quantity supplied of a good is influenced by its price and possibly other factors, such as production cost.

Demand Function

A mathematical equation that describes the quantity of a good that consumers are willing and able to purchase at various prices.

Subsidy

Financial assistance granted by a government or other institution to lower the cost of producing goods or services or to support consumers directly.