Question

Hail damage reducing the number of grapes would decrease the supply of central otago wine, while the price and consumer surplus decrease and increase, respectively. the price increases due to decreased supply and constant demand. consumer surplus decreases due to fewer goods available for purchase and a higher price. the option (c) is correct.

Answer 1

The discussion focuses on the effects of reduced grape supply on Central Otago wine supply and the resulting changes in the producer and consumer surplus, particularly when trade barriers are imposed and imports are excluded.

Step-by-step explanation:

The question pertains to the economic concept of producer surplus and consumer surplus within the context of market changes such as trade barriers, changes in supply due to weather events, and their impact on supply and demand curves. When hail damage reduces the supply of grapes, it leads to a decrease in the supply of Central Otago wine. As a result, the equilibrium price increases if demand remains constant. This situation decreases consumer surplus due to higher prices and reduced availability of goods. Producer surplus, conversely, could increase due to higher prices for the goods that are supplied.

The imposition of trade barriers that exclude imports results in a price increase to PNoTrade. At this elevated price level, the domestic quantity supplied increases, and the producer surplus increases. Meanwhile, the consumer surplus decreases because consumers end up paying a higher price and receiving a lower quantity.

The comparison of economics scenarios provides a clear understanding of how external factors like trade barriers and weather conditions can shift the balance between consumer and producer surplus in a market.