You are a manager for a company that bottles and sells wine in two different countries. You charge the same price for a bottle of wine in both countries. Yet, your wine sales are much higher in one country than the other. Your boss asks you to develop an explanation for the differences in wine sales between the two countries and to develop a plan to sell more wine in the country with low wine consumption.

Population sizes and family incomes in the two countries are very similar. You also know that each country imposes a per bottle tax on wine.

Begin by providing a plausible economic explanation (focusing on constraints) for the differences in wine sales in the two countries. Illustrate your explanation by using indifference curves and budget lines for representative consumers from the two countries. What data would you want to determine if your explanation is likely to be correct? Are there other plausible explanations for the differences in wine consumption? Are there ways to determine which of these explanations is most likely to be driving the differences in consumption?

1. Suppose that your economic explanation is likely to be correct and that your company will not allow you to lower the price per liter that you charge for wine in the two countries. Discuss at least two potential actions that you might take to sell more wine in the country with low demand.

2. Now provide a potential preference-based explanation for the differences in wine sales.

Suppose that this explanation is correct. Discuss whether there are likely to be feasible policies that you could use to increase wine sales in the country with the low demand