Question

Suppose that this summer is hotter than usual, which induces more consumers buying

cold drinks and frozen food. At the same time, the heat wave destroys harvest of sugar

cane that results in a rising price of sugar.

a. Given that more cups of ice-cream are sold in this summer, with the aid of a

supply-and-demand diagram, explain how the above changes affect the market for

ice-cream. (6 marks)

b. Does the law of demand hold in the above case? (2 marks)

Answer 1

A) as input cost rise, so supply Curve shifts upwards to left,

As its given that eqm Quantity sold rises, so demand curve shift towards right is relatively higher than leftward supply curve shift

So Eqm P also rise

SSX l Po A Pet--- A PA dd2

B)

As P rise, eqm Q rises,

So demand Curve fails to hold