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  • Mathieu Provencher

French wine production


(picture from Wix's library)

Hello Everyone, I’m back!

Now that my course Microeconomics is on its way to being published, I decided to change the format of my monthly articles a bit. Don’t worry, I’m still going to relate economic theory to the real world... I have you guys covered on that!

From now on, I’ll try to find real-life examples of the models covered in specific classes. I’ll identify which class each even relates to and show you how our models can explain life.

These should be shorter articles, which I assume will be a welcomed change for most of you, that will probably help you guys put Economic models in context.

OK, here we go!

This month’s article relates to the following classes of unit one: Shifts in Demand (https://youtu.be/MwdiMwpK28c), Shifts in Supply (https://youtu.be/PLBqDfbWw_o) and Changes in Equilibrium (https://youtu.be/JdPIeZILvAw)

As you may know, French wine producers had a tough time last year and this year. Grape crops have been hit by frost, leading to less being produced. It has been reported that this year was the lowest crop harvest in many decades. This economic event will lead to a decrease in supply of wine because of the decrease in its inputs of production. This decrease in supply can lead to an increase in the price of wine.

The Guardian reported that although less will be produced, it will be of a higher quality. If consumers perceive this year’s production as being more desirable, demand will increase. Wine producers may ask an even higher price because of the higher quality of their product.

Wine production (and agricultural products in general) is different from most goods you may think of. The wine market may react a few years after an economic event affects its production. Wine is usually “matured” for months or years before being offered to consumers. It may take a few years before the increase in price since wine sold this year was produced in previous years. We call this a “lag” in Econometrics. Then again, consumers’ expectations may increase the price of wine this year. Buyers of wine, including restaurants, may buy more now to increase their inventories before the lower supply occurs.

To avoid losing so much crops to the elements, grape farmers can try to find ways to protect them from natural events or to find new breeds of grapes that are more resilient while being desirable for consumers. If this is successful, wine production can increase because more grapes can be produced under difficult climate events.

Our models suggest that the price of French wine will probably increase in the next few months or years. Quantity sold will probably decrease by an uncertain amount. Production from previous years can be used to smooth the sale volume of wine, which makes it very difficult to predict.

As you can see, the real world is more dynamic than our simple Economic models suggest. Always remember that our analysis is under the assumption of ceteris paribus. We focus on one change at a time to understand how the economy reacts.

Putting everything together can sometimes lead to uncertain results… in these cases, Economists simply have to wait and see, like everyone else!

Keep an eye on the price of French wine and let's see if we're right!

#Microeconomics #Demand #Supply #Equilibrium #Market #Wine #France #Shift

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