Farm Business Management Update, April/May 2003
By Karen Mundy
New from REAP: The Role of Demand in Production Investment Decisions: The Case of the Virginia Wine Industry by Wayne Purcell and Karen Mundy. There is interest around Virginia in expanding the wine industry. Studies have looked at the economic impact of the wine industry on the Virginia economy. This REAP report describes the role of the level of demand and elasticity of demand when producers of wine grapes or wine are looking at investing in expansion or new operations. The authors describe how the level of demand has increased since about 1994 after declining from a high in 1986. Apparently, demand increased even in 2001. But data show a glut of wine grapes in 2002. No information is available for 2002 on the demand for wine. The authors discuss the role of demand elasticity in estimating what will happen to total sales receipts if quantity is increased but demand remains unchanged. While economic concepts and terms are used to describe what is happening, the report is written for non-economists. This report can be found at the following web site http://www.reap.vt.edu/publications/reports/r57rev.pdf.
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