Question

Consider the market for ice cream. For the following scenarios,draw the graphs to indicate whether the market equilibrium price and quantity for ice cream will increase or decrease.

a. A medical report finding that consuming ice cream prevents the common cold.

b. An increase in the price of milk, an ingredient used to make ice cream.

c. An increase in the price of whipped cream, a complementary good of ice cream.

d. An increase in the price of frozen yogurt, a substitute for ice cream.

Answer 1

A) The medical report will cause the consumers to demand more ice cream and shift the demand curve to the right and it will increase to price and equilibrium quantity.

B) When the price of milk increases,the producers cost of production increases which will decrease the supply and shift the supply curve to the left which will result in a decrease in equilibrium quantity and an increase in price.

C) When the price of whipped cream increases,the demand for ice cream will decrease as a result both price and equilibrium quantity falls.

D) When the price of frozen yogurt increases,then the demand for its substitute will increase which will shift the demand curve to the right and equilibrium quantity and price both increases.