When supply outstrips demand: American wine at its lowest price in 20 years!

The price of wine is dropping fast in the US as a result of changing patterns in consumer behaviour. Where wine was once the popular choice of alcoholic beverage for many young Americans, demand has shifted to other drinks such as liqueurs and ready-made cocktails.

Sadly, the reduction in demand for wine is only half of the problem for American wine producers. New and more efficient production methods were introduced in 2016, resulting in large grape harvests in the last four years. Whilst this sounds great, when demand is not enough to meet this supply, the result is a massive producer surplus. With loads of grapes and falling demand for wine, wine-sellers have had to decrease prices to their lowest point in over 20 years!

Although consumption is now at its lowest point in 25 years, those customers who still want to buy wine are going to benefit hugely from the low prices. Given that wine can last for a long time, perhaps now is the time to buy up large quantities and enjoy for the coming years!

Supply, demand, production, surplus, consumer behaviour… how many economic concepts can we get out of one article?! A lot, is the answer, so thank you to American millennials for driving down the price of wine!

THINK LIKE AN ECONOMIST!

Q1. What is meant by the term producer surplus?

Q2. With the use of a diagram, draw the impact of the falling demand for wine on equilibrium price and quantity.

Q3. With reference to the article above, explain one reason why demand for wine has decreased.

Click here for the source article

TheCuriousEconomist

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