What is the expected market outcome of implementing a price floor on sparkling wine in Vinyardia?

Implementing a price floor on sparkling wine in Vinyardia sets a minimum price that must be maintained above the equilibrium price. This price intervention has specific effects on the market dynamics for sparkling wine.

When a price floor is established, it typically results in a situation where the price is higher than what consumers are willing to pay at equilibrium. Consequently, the quantity demanded by consumers decreases because higher prices discourage purchases. On the other hand, producers are incentivized to supply more of the good since they can sell it at a higher price, leading to an increase in quantity supplied.

As a result of these changes—decreased quantity demanded and increased quantity supplied—a surplus occurs in the market. The supply exceeds demand at the imposed price floor, leading to unsold sparkling wine accumulating in the market. This situation highlights the fundamental economic principle that price controls can disrupt the natural balance between supply and demand, causing market inefficiencies such as surpluses.

Hence, the expected market outcome of implementing a price floor is that quantity demanded will decrease, quantity supplied will increase, and a surplus will result.