Answer to Question #146598 in Microeconomics for Saba

Question

Price (Rupees per Ice-cream cup) 140
120
100
80
60
40

Quantity demanded (Ice-cream cup per month) 500
750
1000
1250
1500
1750

Quantity Supplied (Ice-cream cup per month)
1500
1200
1000
750
600
300

a) Plot the demand and supply curves and show the equilibrium price and quantity. Also, briefly explain if law of demand and supply holds true in this case.
b) Is there surplus or shortage in the market at price Rs.40? At price Rs.120?
c) Suppose if the price of frozen yogurt decreases, elucidate the change it might cause on the ice-cream market given the consumption behavior and also illustrates the same through using 2-dimensional space. In your opinion what type of elasticity best describes this situation?
d) Suppose the price of milk decreases from the equilibrium price. Explain what will happen to the supply curve and also indicate the same on the graph.

Answer 1

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