Question

Prolonged spells of hot, dry weather at the end of the grape-growing season typically reduce a vineyard's yield, because the grapes stay relatively small. In years with such weather, wine producers can make only a relatively small quantity of wine from a given area of vineyards. Nonetheless, in regions where wine producers generally grow their own grapes, analysts typically expect a long, hot, dry spell late in the growing season to result in increased revenues for local wine producers.
Which of the following, if true, does most to justify the analysts' expectation?

• A. The lower a vineyard's yield, the less labor is required to harvest the grapes.
• B. Long, hot, dry spells at the beginning of the grape-growing season are rare, but they can have a devastating effect on a vineyard's yield.
• C. Grapes grown for wine production are typically made into wine at or near the vineyard in which they were grown.
• D. When hot, dry spells are followed by heavy rains, the rains frequently destroy grape crops.
• E. Grapes that have matured in hot, dry weather make significantly better wine than ordinary grapes.

Hint:

When you encounter a paradox question, especially in a business or economics context, think about the basic formulas involved (like Revenue = Price x Quantity). The resolution often lies in a factor that affects one of the variables in an unexpected way. Here, weather affects not just quantity (negatively) but also quality and therefore price (positively).

Answer 1

Answer: (E)

Step 1: Understanding the Paradox
The question presents a situation that seems contradictory. This is often called a paradox.
Fact 1: Hot, dry weather leads to smaller grapes, which reduces the vineyard's yield (quantity of wine produced).
Fact 2: Analysts expect this same weather to lead to increased revenues for wine producers.
The paradox is: How can a lower quantity of product lead to higher total revenue?

Step 2: Key Formula or Approach
The formula for revenue is fundamental to solving this problem:
\[ \text{Revenue} = \text{Price} \times \text{Quantity} \] The paradox states that Quantity decreases, but Revenue increases. For this to be true, the Price of the wine must increase significantly to more than compensate for the decrease in quantity. The task is to find an option that explains why the price would increase so dramatically.

Step 3: Evaluating the Options
(A) This option discusses labor costs. A reduction in costs affects profit (\(\text{Profit} = \text{Revenue} - \text{Costs}\)), but it does not explain why revenue itself would increase. The analysts' expectation is specifically about revenue, not profit.
(B) This option discusses weather at the beginning of the season. The premise of the argument is about weather at the end of the season. Therefore, this option is out of scope and irrelevant.
(C) This option explains where the wine is made. While this is an interesting fact about the wine industry, it doesn't provide a reason for the expected increase in revenue. It doesn't connect the weather to either price or quantity in a way that resolves the paradox.
(D) This option describes a situation (hot, dry spells followed by rain) that would destroy crops. This would lead to even lower yields and likely lower, not higher, revenue. This deepens the mystery rather than resolving it.
(E) This option provides the missing link. If the grapes that mature in hot, dry weather produce significantly better (i.e., higher quality) wine, this higher quality wine can be sold at a much higher price. Consumers are often willing to pay a premium for exceptional quality. This large increase in price can offset the decrease in quantity, leading to an overall increase in revenue. This perfectly resolves the paradox.
Step 4: Final Answer
Option (E) is the correct answer. It justifies the analysts' expectation by introducing the factor of quality, which directly impacts the price of wine. A substantial increase in price due to higher quality explains how revenues can increase despite a lower production quantity.