This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
11/09/2010
Wine Prices are on the Decline!
Wine prices are on the decline and now is a perfect time to grab a bottle. The wine industry is experiencing an excess supply currently in the market and it's causing prices to drop. It's interesting to see that wine prices in America are dropping even though our consumption rate is increasing. We are currently second on the list of the top wine drinking countries and we should be passing France sometime in the future. The falling prices in the U.S. are seen as a result to the falling consumption rate in other countries. We should see this pattern continue unless America's consumption rate increases even more, or other countries consumption rates start to rise instead of fall. This would eliminate the excess supply and drive prices back up to equilibrium, but until that day arrives go enjoy a cheap bottle of wine because it may not last too long!
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2 comments:
LOL (a little bit) ...
I think a lot of this also depends on price discrimination. Wine is something that people like to claim they can judge, but my suspicion is that they aren't that good at it. If this is the case, then we are seeing a lot of price discrimination and market power.
The variety of labels on wine tends to support this.
Any industry that acts this way is always subject to people finding out they've been scammed.
Many states - not just Utah - ban something along the lines of supermarkets for wines. The biggest supporters of this tend to be small wine stores - that are in on the monopoly profits game.
It's ironic that Utah, that bans these for cultural/moral reasons, is actually playing into the hands of small-scale monopolists in places like Mesquite.
With the economy in a recession it’s logical that something like wine would decrease in price because it can definitely be considered a luxury good. A luxury good is a good for which demand increases more than proportionally as income rises. Luxury goods have a high income elasticity of demand. As people become wealthier they will buy more wine, but the reverse is also true. As a person’s income declines (like in a recession) there will be a drop in demand. In the short-run, supply will continue to be high because manufacturers have yet to decrease their production to match the rate at which customers have decreased their buying. In the long-run, equilibrium will eventually be achieved as supply is reduced and matches demand because of lowered prices.
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