The world price of wine is below the price that would prevail in France in the absence
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The world price of wine is below the price that would prevail in France in the absence of trade.
a. Assuming that French imports of wine are a small part of total world wine production, draw a graph for the French market for wine under free trade.
Identify consumer surplus, producer surplus and total surplus in an appropriate table.
b. Now suppose that an outbreak of phyloxera (a sap sucking insect which damages grape vines) in California and South America destroys much of the grape harvest there. What effect does this shock have on the world price of wine? Using your graph and table from part (a), show the effect on consumer surplus, producer surplus and total surplus in France.
Who are the winners and losers? Is France better or worse off?
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