Question

Using supply and demand analysis explain what will be the impact on the price and quantity of ice cream sold- the cost of feeding dairy cows increases dramatically, more consumers are purchasing ice cream making machines and the price of chocolate syrup falls with a diagram as well

Answer 1

If the cost of feeding dairy cows increases dramatically, then it means cost of production of milk increases, so price of milk also increases. Since milk is an ingredient of ice-cream, so cost of production of ice-cream also increases. Hence supply decreases and supply curve shifts leftward, as a result equilibrium price increases and quantity decreases. All this has been shown in the below diagram.

If more consumers are purchasing ice cream making machines, then production of ice-cream increases, Hence supply of ice-cream increases and supply curve shifts rightward, as a result equilibrium price decreases and quantity increases. All this has been shown in the below diagram.

If the price of chocolate syrup falls, then cost of production of ice-cream decreases because chocolate syrup is an ingredient of ice-cream. Hence production of ice-cream increases, Hence supply of ice-cream increases and supply curve shifts rightward, as a result equilibrium price decreases and quantity increases. All this has been shown in the below diagram.