Q 19 Rapel Valley in Chile is renowned for its ability to produce high-quality w

Question

Q 19

Rapel Valley in Chile is renowned for its ability to produce high-quality wine at a fraction of the cost of many other vineyards around the world. Rapel Valley produces over 20 million bottles of wine annually, of which 5 million are exported to the United States. Each bottle entering the United States is subjected to a $0.50 per bottle excise tax, which generates about $2.5 million in tax revenues. Strong La Nin~a weather patterns have caused unusually cold temperatures, devastating many of the wine producers in that region of Chile. How will La Nin~a affect the price of Chilean wine? Assuming La Nin~a does not impact the California wine-producing region, how will La Nin~a impact the market for Californian wines?

Explanation / Answer

1
La Nina will cause a huge fall in production of wines from the current level of 20 million. Since, it is produced at a low cost, the Chilean citizens would normally drink the locally produced wine. Hence, a shortage would fuel a rise in the price of Chilean wine, as everyone would like to purchase it due to its low cost.

2
La Nina would cause a fall in supply of Chilean wine, this shortage could be filled by Californian wine. This effect would cause a surge in demand of Californial wines, which would probably lead to a rise in price of Californian wine assuming it has sufficient spare capacity.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.