Answer to Question #281293 in Microeconomics for Mirrabel

Question

Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market- clearing level?

Answer 1

Assume that ice cream supply is entirely inelastic in the short run, resulting in a supply curve that is vertical, as illustrated below. P1 is the initial equilibrium price. The demand curve for ice cream shifts from D1 to D2 as a result of the abnormally hot weather, resulting in short-run excess demand (i.e., a brief scarcity) at the current price. Consumers will compete for ice cream, exerting upward pressure on prices, and ice cream vendors will respond by boosting prices. Ice cream prices will climb until the quantity demanded and supplied are equal, which will happen at price p2.