The world price of wine is below the price that would prevail in the United Stat
ID: 1181641 • Letter: T
Question
The world price of wine is below the price that would prevail in the United States in the absence of trade.
a.) Assuming that American imports of wine are a small part of total world wine production, draw a graph for the U.S. market for wine under free trade.
b.) Now suppose that a tariff is place on the importation of wine into the United States to protect domestic wine producers. What does this do to the price?
c.) Draw a new diagram illustrating the price change as well as the changes to the quantity of imports.
Explanation / Answer
(b)
Your hypothetical has a serious flaw.............
You didn't take into account that ....................Europe is NOT the only source of wine in the world market.
A cold summer in Europe means nothing to The USA, Chile, South Africa, Australia, and many other wine producing nations. Those guys in California are STILL going to be churning out their plonk, and so will the others I mentioned. Remember that the Americans have a huge tariff on Canadian wines being imported INTO the USA, to the extent that most Canadian wineries don't even bother to try to sell there, as the cost per bottle is way beyond the price that domestic American wines sell for .
Effect on world wine prices ? Not much as local products will still out sell imports, based on shipping costs and profit margins on the imports.
Canada might benefit, but remember what the EU attitude towards our wine products has been in the past, in particular in France ??
Can you hear the sneer ? Ontario wine ? Only to wash the BMW with ,mon ami .
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