Question

Use a supply and demand diagram for a specified competitive market to demonstrate the effect of the specific shocks given in the cases below on the equilibrium price and quantity. Clearly explain the key adjustments in demand and supply curves that result. Show whether there is a shift in the demand curve, the supply curve, or neither.

An abrupt heat wave smashes the city of Lusaka. Show the effect in the ice cream market in Lusaka.                                                                      

Answer 1

The ice cream’s equilibrium quantity and the price will increase. Equilibrium quantity will increase from Q0 to Q1. The equilibrium price will increase from P0 to P1. The demand curve will shift rightward from Do to D1 as shown in the graph.