Answer to Question #213448 in Microeconomics for Asad

Question

A survey indicated that chocolate is the most popular flavour of ice cream in America. For each of the following indicate the possible effects of demand or supply or both as well as equilibrium price and quantity of chocolate ice cream

a) A severe drought in the Midwest causes dairy farmers to reduce the number of milk-production cattle in their herds by a third. These dairy farmers supply cream that is used to manufacture chocolate ice cream

Answer 1

Looking at the market for chocolate ice cream, I'd like to predict what will happen to supply and demand, as well as the equilibrium price and quantity, in four possible situations. So, for one thing, they were looking at a drought in the Midwest, which has resulted in a one-third reduction in dairy cattle. So, these dairy cattle create cream, which is used to make ice cream. If there is a drop in dairy cattle, we should expect an impact on ice cream supply because we will be losing one of our primary inputs in the process of creating ice cream. As a result of the drought, the supply curve in the market for chocolate ice cream will diminish, pushing our supply curve left from s note to S. The one we'll see here is a new equilibrium, in which we have less ice cream and a higher price for chocolate ice cream. We're still looking at the chocolate ice cream business, but chocolate has now been discovered to offer health benefits. This appears to be true in this scenario, since consumers will be more willing to consume chocolate ice cream because it provides health benefits. As a result, demand for chocolate ice cream will rise. We'll witness a rightward shift in our demand curve to d. one, which will, of course, result in a new equilibrium with more quantity and a higher price for chocolate ice cream. I'm considering how a decreased pricing for vanilla ice cream may affect the market for chocolate ice cream. So, presuming that the price of vanilla ice cream has dropped, and that these two ice cream tastes are simply substitutes for one another. This decreased pricing of vanilla ice cream will encourage people to buy more vanilla ice cream rather than chocolate ice cream. So we'll see a fall in demand for chocolate ice cream, which will cause this curve to move to the left two D. 1, giving us this equilibrium point right here at a lower amount of chocolate ice cream and a lower price for chocolate ice cream. We're looking at decreased chocolate ice cream manufacturing prices, so because it's now cheaper for producers to make the ice cream, they'll opt to make more because it's cheaper. As a result, the supply of chocolate ice cream will grow, pushing the supply curve from s. note to S. one to the right. This results in a new equilibrium point with more chocolate ice cream available and a lower price for chocolate ice cream.