Question

8. In the summer, an increase in the temperature outside increases from 90 degrees to 100 degrees and it causes the amount of ice cream consumed at a local ice cream shop to increase from 50 gallons to 100 gallons. a. Describe the concept of a "temperature elasticity of ice cream." b. Calculate the temperature elasticity of demand for ice cream using the information provided c. In what range of elasticity does your result fall? What does this say about ice cream consumption?

Answer 1

a.The concept of "temperature elasticity of ice cream" can be described as the measure of degree of responsiveness of change in quantity demanded of ice cream as a result of a certain change in the temperature.In simple terms,it is the ratio between percentage change in quantity demanded of ice cream and percentage change in the temperature.

b.c.The result falls in the range e>1.It means that the demand of ice cream is quite elastic.There is a greater percentage change in the quantity demanded in response to a certain change in temperature.If the temperature increases by 1 percent,the quantity demanded of ice cream increases by 9 %.The demand is quite responsive.

6) Initial temperature (t) = New temperature (te) = 90 degrees 100 degrees Pealth Initial demand - quantity (a) = 50 gallons. New quantity deshanded = 100 gallons - t = 90 t = 100 ot = 10 q = 50 1 q = 100 sq = 50 gallons Temperature elasticity to of demand - sa at c) The result falls in the range of