Saxum Vineyard, in Paso Robles, CA, is one of the more than 8,000 wineries in the United States. While Saxum produces a number of different kinds of wine, they focus their production on Syrah (also known as Shiraz). Saxum sells their wines all over the United States. Suppose you manage a vineyard like Saxum and want to determine how much you should charge for your Syrah. Suppose the market demand function for Syrah is as follows. QD = 210- 35.11PO + 7.65PS - 2Pc + 12Inc + .7TS + .5M21 Where QD is monthly demand for bottle of Syrah (in millions), PO is the price of Syrah in the market, PS is the average price of substitute bottles of wine (other varieties), Pc is the average price of a pound of cheese and is used to gauge the price of complementary goods, Inc is average US per capita income (in thousands), TS is the number of wine trade shows and competitions each year which firms can attend to market their wines, and M21 is the number (in millions) of millennials in the US over the age of 21. This last variable is included to capture a change in consumer preferences; millennials are drinking wine at a much higher rate than previous generations. The market for Syrah also has supply, produced by wineries similar to Saxum Vineyard and your winery, which can be stated as follows. QS = - 80+ 21.59PO - 3PPI - 10PS + 7Temp + 1Sup Where QS is monthly supply of bottles of Syrah (in millions), PO is the price of Syrah in the market, PPI is the Producer Price Index (an index used to gauge changes in the costs of production in the US), PS is the price of substitute wines which could easily be produced instead of Syrah, Temp is the expected temperature during the harvest season for grapes, and Sup is the number of wineries that supply Syrah in the market (in thousands). Using the market supply and demand functions for Syrah given, fill in the template provided with the coefficients for each function. Using the information below, fill in the values for each of the variables except Price of Syrah.

Demand:

-Price of Substitutes: $18

-Price of Cheese: $16

-Income: $53,000

-Trade Shows/Competitions: 4

-Millennials = 45 million Supply

-PPI: 111 -Price of Substitutes: $18

-Temperature: 61-Number of Suppliers: 9,000

a) When the price of syrah increases by $1, do supply and demand increase or decrease? By how much? What is the effect on quantity demanded and quantity supplied?

Quantity demanded ___________ by ____________million of bottles

Quantity supplied ___________ by ____________million of bottles

b) Does a $1 decrease in the price of substitute bottles of wine shift the demand and supply curves to the left or right and by how much?

Demand curve is shifted to the _____ by ______ million bottles.

Supply curve is shifted to the _____ by ______million of bottles

c) Suppose the price of Syrah is currently $18 per bottle, how many bottles will be demanded and supplied monthly?

Bottles Demanded = _____Million

Bottles Supplied = _______Million

d) Is there a shortage or a surplus and how much is that shortage or surplus?

e) If the market price ofSyrah rises to $24 per bottle, how many bottles will be demanded and supplied monthly?

Bottles Demanded =_______ million

Bottles supplied = ______________million

f) is there a shortage or surplus and how much is that shortage or surplus?