Question

This question examines the market for milkshakes. You will analyze the effects of different supply shifters on the supply curve for milkshakes.

Task 1: The price of ice cream, used to produce milkshakes, falls in price. Does the supply curve for milkshakes shift? If so, does it shift to the right or to the left?

Task 2: The wages paid to milkshake makers increases. Does the supply curve for milkshakes shift? If so, does it shift to the right or to the left?

Task 3: Milkshake producers expect the price of milkshakes to rise in the future. Does the current supply curve for milkshakes shift? If so, does it shift to theor to the left?

Task 4: Milkshake producers can also make smoothies (instead of milkshakes). When the price of smoothies falls, does the supply curve for milkshakes shift? If so, do it shift to the right or to the left?

Task 5: During the summer months, consumers want to purchase more milkshakes. Does the supply curve for milkshakes shift during the summer months? If so, does it shift to the right or to the left?

Answer 1

1.The supply curve shifts to the right.

Ice cream is used in production of milkshakes and a fall in its price reduces the cost of production of milkshakes,thereby increasing its supply.

2.Supply curve shifts to left.

Increase in wages increases cost of production,reducing supply.

3.Supply curve will shift to the right.

Expectation of price rise increases expectation of future profits.

4.Rightward.

Smoothiesare substitutes of milkshakes.A fall in price of smoothies will reduce supply of smoothies because of lower profits from production.Thus,suppliers will produce milkshakes because its price is relatively high.

5.Right.

Expectation of higher demand in the future acts as an incentive for the producers to raise supply,in order to absorb the profits from increased demand.