Question

You operate an ice cream stand. Consumer tastes seem to be directly (i.e. positively) related to the daily high temperature. As daily high temperature increases, what likely happens in the market for ice cream cones?

Demand shifts right, equilibrium P increases and Q decreases.

Demand shifts right, equilibrium P decreases and Q increases.

Demand shifts left, equilibrium P decreases and Q decreases.

Demand shifts right, equilibrium P and Q increase.

Answer 1

Answer - Demand shifts right , equilibrium P and Q Increase.

Reason -

In summer season the the taste of ice cream is directly proportional to the temperature, which means as the temperature rises the taste will also Increase for the consumers and the demand for ice cream will increase shifting the demand curve to right.

This situation will create a demand and supply gap for a short period of time because the demand has increased but the price is still same.

Now as the demand increases the price will also Increase because the supply is limited and price will keep increasing until it reaches the new equilibrium.