Land in Sonoma, California can be used either to grow grapes for pinot noir wine or to grow Gravenstein apples. The benefits of red wine has been widely discussed (see, for example, reports from WebMD and the Mayo Clinic) and recently, the Daily Meal's report on the health benefits frompinot noir (a specific red wine).Consider that after these reports, the price ofpinot noir increases and remains higher than it was before the reports. At some point after the price increase (about a week later), one of your friends argues that this increase resulted from a rightward shift in the demand for pinot noir. However, your friend continues, this increase in demand will cause a rightward shift of the supply curve, which will lead to an offsetting decrease in the price of pinot noir. Therefore, it is impossible to tell what effect the reports and subsequent increase in demand will have on the price of pinot noir.

Questions

1. Do you agree with your friend's argument? If so, state that you agree and provide an explanation for your agreement. If not, state that you do not agree and provide an explanation for your disagreement.

2. Consider that about 18 months later, your friends are having yet another discussion about the market for pinot noir. This time, the price is actually higher when compared to your friend's first discussion, and the quantity traded is lower. Before your friend shares his opinion, you decide to share your thoughts about the possible event (or events) that led to this outcome. What would you suggest led to this outcome?